[HN Gopher] Yellen says government will help SVB depositors but ...
___________________________________________________________________
Yellen says government will help SVB depositors but rules out
bailout
Author : guiambros
Score : 454 points
Date : 2023-03-12 13:30 UTC (9 hours ago)
(HTM) web link (www.ft.com)
(TXT) w3m dump (www.ft.com)
| grej wrote:
| Seeing all of the "screw them, they are VC's & tech bros, they
| took a risk they own it" sentiment on Twitter makes me sad. It's
| a hard realization of how little clue so many people have about
| so much of the way the financial system works, and who would
| actually be impacted by these losses.
|
| Also seeing finance bro hot takes like, oh those companies took
| the risk and should have done due diligence on the bank. SIVB was
| given an investment grade rating by both Moody's and Standard and
| Poor. What due diligence are founders scrambling to find product
| market fit supposed to do in their spare time that is somehow
| beyond those organizations?
| nemothekid wrote:
| > _It's a hard realization of how little clue so many people
| have about so much of the way the financial system works, and
| who would actually be impacted by these losses._
|
| I think it's a little insulting to assume these people just
| don't understand the system. I think you have to nearly totally
| politically ignorant to not understand why people would feel
| this way. I don't know how you don't see the irony of
| complaining that ex-McKinsey founders shouldn't have to do due
| diligence on their bank, but that 18 year olds "know what they
| signed up for" and should have known that student loans were
| un-bankruptable. Many of the VCs who are now going hat in hand
| to Yellen are the same who opposed any sort of socialization.
| Why wouldn't that cause resentment?
| rashkov wrote:
| The great financial crash and the socialization of losses that
| followed it have a lot to do with this populist attitude
| christophilus wrote:
| I've noticed this tendency for at least a decade. People in
| general-- even highly educated people in the media, government,
| and academia-- are ignorant about economics and finance. There
| tends to be no nuance in much of the popular takes. I'm still
| quite ignorant, myself, but at least I can offer a bit more
| insight than: "capitalism: bad".
|
| I am curious, though, as to whether or not this general
| ignorance is new, or if it's just that I've become more aware
| of it over the years.
| azinman2 wrote:
| Now people's dumb opinions can be heard en masse. They can
| then even bubble up and get elected into congress. Before
| there was a muzzle by those who knew better who controlled
| the media and narrative. You can easily argue that gate kept
| all kinds of things that shouldn't have been swept under the
| rug, but it turns out there's a lot more dirt than coins
| under that rug.
| ak_111 wrote:
| The only comic thing in this entire tragedy is watching the
| fanatics who have been relentlessly preaching to others such
| dictums as "move quick and break things" and "only the paranoid
| survive", extolling the virtues of "creative destruction" and
| repeating ad infinitum the Reagan quote "The top 9 most
| terrifying words in the English Language are: I'm from the
| government, and I'm here to help" cry out for government
| intervention, with seemingly zero self awareness in how it
| basically contradicts their entire world view.
| ALittleLight wrote:
| I think it's common to take people you disagree with and put
| them in a mental bucket labeled "other". Then, you can see
| people opposed to all government intervention, bucket them as
| other, and see people who think depositors deserve to be made
| whole, and conclude that there is some hypocrisy going on with
| the latter position, because different people you disagreed
| with thought different things.
| [deleted]
| foobiekr wrote:
| That, the documented comments by short sellers for months about
| it being a trainwreck, the last minute bonuses and the dumping
| of stock on retail investors by insiders.
|
| It's like all of the tech misbehavior packaged neatly up into
| one story.
| ak_111 wrote:
| The worst is the bosses of SVB playing a role in lobbying for
| more relaxed banking regulations.
| christophilus wrote:
| I tend to be libertarian, but there are reasonable roles for
| government, and regulating banks and life insurers by forcing
| them to contribute to something like the FDIC and the state
| insurance commission (or whatever that life insurance thing is
| called) is legitimate even to most conservatives.
|
| Stepping in to smooth out systemic problems is another valid
| function-- like Reagan did with the air traffic controllers,
| like the FDIC does with bank failures, etc.
|
| Anyway, I don't think folks are asking for a handout. They're
| just asking the FDIC to do their jobs more quickly than usual
| because so many businesses are tied up here. This is the reason
| there is an FDIC in the first place. I don't think it's
| unreasonable to ask them to smooth the process out to help meet
| payroll. None of this requires handouts-- just proper
| management and metering out of the assets under consideration.
| nemothekid wrote:
| > _Stepping in to smooth out systemic problems is another
| valid function_
|
| Whether you consider this problem "systemic" is political.
| Note that the FDIC insurance is not the point of contention
| here - it's whether depositors should be made hold especially
| if SVB's HTM securities are insolvent.
|
| I could easily make an argument why student loan debt is a
| systemic issue in the united states - the government's
| guarantee of the loans as well as making them impossible to
| clear via bankruptcy has created both infinite demand
| (leading to higher tuition prices) and reckless loaning (due
| to the government essentially guaranteeing the loans). Why is
| this "systemic" issue unreasonable, while SVB is?
| christophilus wrote:
| I don't think depositors should be made whole if it can't
| be done by a combination of managing the bank's assets, and
| sale of depositors to other banks.
|
| So, if you're saying neither the Fed nor the treasury nor
| the tax payers should bail out depositors, then I agree
| with you.
| pfannkuchen wrote:
| One important aspect is that we _may_ be embedded in a
| vicious circle of discontinuity events and smoothing. A broad
| expectation that smoothing will be applied after a
| discontinuity event will tend to make people more willing to
| accept the future risk of discontinuity events in their
| decision making.
|
| Less risk-avoiding behavior regarding discontinuity events
| makes discontinuity events more likely. Then, when the next
| discontinuity event happens, if smoothing is again applied,
| it reinforces this expectation, which reinforces the
| probability of future discontinuities, etc.
|
| For this reason, swearing off active smoothing _could_
| actually result in a smoother system, eventually (after the
| pain of transition, of course).
| nemo44x wrote:
| The government and its institutions (The Fed) had a big part in
| this though. They flooded the market with cash, sold a bunch of
| bonds with low interest rates (lowest ever) to tons of banks
| that had to figure out how to manage that cash and did so by
| buying "the safest investment", and then that same institution
| jacked up interest rates to the highest in 20 years over the
| course of 10 months.
|
| So no, if the government and the fed would actually let the
| market set interest rates then this doesn't happen. If the UST
| had to sell bonds at the real market rate for them then this
| doesn't happen.
| almog wrote:
| They had plenty of time to hedge against that risk -- the Fed
| since almost a year now has been "higher for longer".
|
| Believing and pumping the Fed pivot narrative and by doing so
| betting wagainst the Fed is what failed them.
| nemo44x wrote:
| I'm not saying the SVB management is not to blame. Their
| business should go to 0. I'm just saying that the gov
| policy and erratic Fed policy caused this. The Fed is
| creating a lot of problems right now. They're going to kill
| the patient trying to kill the cancer.
| ak_111 wrote:
| I am not a fan of the Fed, but it was created precisely to
| stabilise the banking system due to a huge number of bank
| runs (that happened before it was created).
|
| I think the only consistent libertarian position on this
| would be to concede that bank runs are totally normal (and
| welcome even) aspect of a capitalist system and they should
| never be bailed out or depositors compensated as it would be
| rewarding irresponsible behaviour (both by shareholders AND
| depositors).
| [deleted]
| bluecalm wrote:
| I get bailing out depositors. It's not like you have that many
| options with our current system. You have to keep your liquid
| assets somewhere, banks are the only option and they are going to
| do risky business with your assets. Maybe you should be more
| prudent when choosing your bank but it's not like you can avoid
| the risk or that depositing with SVB was caused by greed (at
| least I think not, correct me if I am wrong).
|
| Long term solution is imo obvious as well: decouple deposits and
| lending business. You should pay for having your money in a bank
| and being able to conveniently operate it. The bank should not do
| any businesses with the money (maybe something like buying
| government T-bills should be permitted) and profit purely from
| providing services: safety, transfers, payments.
|
| Loan making should be a separate industry. Gather capital,
| fulfill regulation and do business as it is today but not with
| deposits but with stakeholders capital.
|
| In such a setup there is little systemic risk: bank goes bust?
| Shareholders lose the money. No moral hazard of "I will deposit
| in this risky bank and the government bails me out if things go
| sour".
|
| Want to keep liquid assets conveniently? Pay for it. Want to
| invest in a loan making operation? Buy shares in a bank and
| accept the risk.
|
| The current system forces depositors to accept risks of loan
| making business just because they need a place to keep liquid
| assets. It's not like they were asked a question: "hey, do you
| want us to risk your money or do you prefer to pay for
| operational costs of your account but we keep the money safe?".
| If the question was asked then it would be very easy to say no to
| any kind of bailout.
| cjbgkagh wrote:
| I think there is a lot of confusion around bail-out vs bail-in.
| The Dodd Frank act 2010 rules out bail-out but opens the door for
| bail-in. In a bail-in uninsured depositors are unsecured lenders.
| It gets a bit complicated as rules are different between
| countries and are open to both interpretation and case by case
| modification.
|
| AFAIK this isn't a bail-in as there is no attempt to save the
| bank. As the bank is in receivership the depositors get a
| receivership certificate and by FDIC law depositors get paid
| first before lenders and equity. I think possibly before secured
| lenders but I'm not sure. In liquidation preference is
| everything. Given the assets, even at fire sale prices,
| depositors should get most and possibly all of their money back.
| That would mean any bail-out would be to help the banks other
| lenders. I don't know for sure but I assume those would be other
| banks, so I guess it would be sold as an idea to limit contagion.
| I'm anti-bail-out. Depositors can borrow against receivership
| certificates to get some liquidity. Obviously they'd pay a time
| and risk premium for that but better than going insolvent. I
| don't have cash in bank account above FDIC limits yet I still
| have multiple accounts in different countries. Basically applying
| backup rules to banking to avoid a single point of failure. If a
| bank freezes my funds for whatever reason I would need money to
| be able to pay a lawyer to get them unfrozen. I heard SVB would
| punish customers (with higher fees I guess) who banked with
| multiple banks so not only did SVB have a very high percentage of
| uninsured deposits the depositors they did tended not to spread
| the risk around.
|
| Now bail-ins are a totally different matter. Deposits above
| insurance unsecured liabilities and depending on the jurisdiction
| can be anywhere in the preference line from in the front to near
| the back (still in-front of equity which will always get hosed).
| This is very different to most people's perceptions as they
| believe the bank is holding their money in trust which would put
| them first in line. Effectively (afaik) uninsured deposit amounts
| are insuring the insured deposit amounts as their deposits
| contributed to pool of assets that get paid out in liquidation.
| One of the reasons for a bail in is continuity of operation, new
| equity is issued (the old ones are deleted) and instead of
| receivership certificates which holders can use to get loans on a
| case by case basis the equity can be traded making it easier and
| cheaper to free up liquidity. Since the new bank will be solvent
| the assets won't need to sold at fire sale prices. But the other
| aspect is the mingling of uninsured depositors with other lenders
| really has the potential to drastically increase the size of the
| haircut depositors can expect. While many of bail-in legislations
| seem to have loop-holes allowing this (some countries state it
| more explicitly) it seems unfathomable that such a thing would be
| done as that would destroy the false trust that people have in
| the financial system. Unless of course all off-ramps from banks
| are closed and people are stuck choosing between a bad deal from
| one bank and a bad deal from another bank.
| readonthegoapp wrote:
| i'm curious about two things:
|
| 1) why are the feds claiming they are going to 'help' depositors?
| isn't it more, like, no, you're just going to do what you're
| required to do by law?
|
| 2) shouldn't the FDIC deposit insurance limit be pegged to
| inflation? yeah, obvious, but. last raised in 2008 to $250k.
| seems like it'd be about $350k today.
| version_five wrote:
| As others have said, if depositors are bailed out, it's a
| bailout. Pretending that changing the definition makes a
| difference is childish.
|
| Whatever the government decides to do, this makes the VC and
| startup industry look really weak and entitled, and knocks them
| down from risk takers building the future to the same status as a
| bunch of bankers looking for a handout.
|
| There was an opportunity here for VCs with lots of clout, YC
| included, to come up with a private solution to backstop this. It
| would have shown independence, maturity, and that more government
| oversight and intervention is not needed. That adults can take
| care of themselves.
|
| Instead they went whining to the government, made a petition,
| tweeted sadly, and whatever else. It's unbecoming of an industry
| that's supposed to be scrappy and have an appetite for risk.
| omginternets wrote:
| Respectfully, I think you are the one playing with definitions.
| "Bailout" refers to shareholders. It refers to bailing out the
| institution, not it's depositors.
|
| We can talk about a depositor bailout if you want, but let's
| not pretend it's the same thing, not pretend it's what the term
| "bailout" commonly refers to.
| mixdup wrote:
| We're changing the (very well) known rules in the middle of a
| crisis and acting like we didn't know what happened could
| happen, when we did. This is a bailout
| lbrandy wrote:
| The only reason you and others seem so desperate to
| redefine bailout so you can call it a bailout is because
| you want to attach the negative connotations to that word
| to "hurt" the people you want to be hurt.
|
| It's embarrassing, shortsighted, and destructive.
| omginternets wrote:
| Yeah, that's (still) not what "bailout" means.
| lisasays wrote:
| Multiple sources attest to the contrary - very consistently a
| "bailout" is taken to refer to _any_ kind of financial
| assistance provided to a failing institution (not just to the
| shareholders). For example, Investopedia:
| What Is A Bailout? A bailout is when a business,
| an individual, or a government provides money and/or
| resources (also known as a capital injection) to a failing
| company. These actions help to prevent the consequences of
| that business's potential downfall which may include
| bankruptcy and default on its financial obligations.
|
| All the major English dictionaries, and Wikipedia will tell
| you same thing.
|
| To call this action anything other than "bailout" is to mince
| words, plain and simple.
| throwawaysleep wrote:
| I'm not willing to lose a dime to avoid looking "unbecoming." I
| doubt they are either.
|
| Dignity and an empty sack are worth the sack.
| hchehxhsb wrote:
| > Pretending that changing the definition makes a difference is
| childish.
|
| Right or wrong sometimes your own maturity gets called into
| question by the words you use and how you treat others who
| disagree.
| lambo4bkfast wrote:
| Bailout implies that the individual/business being made whole
| *should* have made decisions to prevent the situation from
| occurring in the first place. What responsibility did a SVB
| depositor have in SVB's decision to purchase billions of MBS in
| 2021?
| shrimpx wrote:
| If the depositor wasn't ok with that (presumably public)
| decision they should have pulled out then. Or pulled out when
| treasury rates started ticking up and the writing was on the
| wall. Alternatively, they should have bought private
| insurance for their money or structured their money in
| multiple banks.
| cactusplant7374 wrote:
| > What responsibility did a SVB depositor have in SVB's
| decision to purchase billions of MBS in 2021?
|
| Was this decision public and announced in a regulatory
| filing?
| martythemaniak wrote:
| Indeed. The bank was trying to raise money and recapitalize
| itself several days before this and instead of investing, VCs
| panicked, told their portcos to withdraw immediately, and
| started a bank run.
| cheeseblubber wrote:
| The VC's who told their portfolio companies to withdraw will
| be fine. The ones who didn't cause the bank run will be hurt
| the most.
| onlyrealcuzzo wrote:
| Right, they told their clients to run for the exits, caused a
| collapse on their uninsured deposits - and now expect a
| handout (and will get it).
| teawrecks wrote:
| By and large, the ones who ran aren't the ones who were
| hurt.
| ts3001 wrote:
| Dispensing with all the hand-wavy, moral grandstanding about
| being "unbecoming", "mature", showing "independence", being
| "weak and entitled" etc etc... None of this is even remotely
| relevant, you'd be equally reasonable to tell us you wish
| startups were comprised of more handsome and charming
| individuals or that they should attend church more frequently.
|
| In terms of discussing risk, startups should minimize all risks
| possible because their core risk is to find a business model
| and product that works. Putting cash into a bank account isn't
| a "strategy" nor is it an investment. Much like choosing to
| incorporate in Delaware, it's something you do because it's
| standard and adds no unnecessary risk to the business. It's not
| smart to try to get fancy with boilerplate company things-you
| have enough risk already.
|
| Anyway, at the core of your argument seems to be two beliefs:
| 1. VCs had the capability to stop this from happening with
| private means (no) 2. People who start companies or work at
| them just generally deserve bad things to happen to them,
| regardless of how proximal or not the causes are of their
| misfortune.
|
| I am biased because I've sacrificed years of my life and
| probably the vast majority of my potential earnings to try to
| build a good business. It's been the hardest thing I've ever
| done, no one's impressed by it, it's not yielded any financial
| benefits, it's harmed my personal and social life, and by all
| likelihood I'll never see any significant success. But I keep
| trying because I like our customers and my coworkers and I care
| more about the possibility of building something great than I
| do all the rest.
|
| It's hurtful to chalk up the (potential) death of companies
| like mine to being "weak and entitled". Of all the risks to
| account for in building a business, having our bank accounts
| disappear overnight didn't even crack the top 100 of risk
| factors. Things like losing customers, failing to grow revenue,
| keeping employees happy, etc. are at the top; below that are
| changes to the market, competition, and the death of co-
| founders or myself. It's not possible to account for every
| conceivable risk.
|
| Anyway, it looks like we'll get some help here so it's not over
| for us yet. On behalf of companies everywhere, I'd like to
| apologize that you've been deprived the opportunity to dance on
| our graves.
| nonethewiser wrote:
| > As others have said, if depositors are bailed out, it's a
| bailout.
|
| No one is nor can argue that. But you're presupposing it's a
| bailout.
| drdrek wrote:
| Its too much to expect from VCs, they are each trying to
| maximize their gain. Creating consensus and cooperation is very
| hard, especially in bad times. It's exactly why governments
| exist, In some cases a web of self interested parties will
| produce horrible results and central authority can be more
| effective.
| mixdup wrote:
| This is fine, but when things are rosy the VCs and startups
| can't claim that government regulation is communism and
| choking off their ability to do whatever they want
|
| If you want the backstop if the government you have to be
| willing to play within its rules during the good times too
| shrimpx wrote:
| Companies will always look to (a) maximize the amount of
| available decision power and (b) externalize decision risk
| as much as possible.
| teawrecks wrote:
| Banking isn't intended to be a risk, though. That's literally
| the point of FDIC insurance.
|
| Idk why I'm even bothering making an argument when your opening
| argument is ad hominem.
| computing wrote:
| have you read the financials of the banks you bank with? have
| you read the source code of every app/other software that you
| use?
|
| Interesting new world folks are suggesting here, where
| depositors can't trust the highly regulated banks they bank
| with.
| version_five wrote:
| I know how much money I have at risk and how much is insured.
| It would be pretty irresponsible for me to not and just
| assume someone will step in and give me their money if I lose
| mine.
|
| I'm personally a conservative investor, which means amongst
| other things I forgo notional returns by making safer
| investments. So it definitely makes my angry to see people
| that had a less responsible money management strategy get to
| participate in all the upside and not have to take the
| downside.
| addisonl wrote:
| If you have over $250k in a single account then you probably
| should do some due diligence...
| gutdcnow wrote:
| [dead]
| remote_phone wrote:
| The truth is VCs are terrified their investments in their
| startups are going to go to 0. That's why the biggest most vocal
| people are VCs talking about this. So they are framing the "we
| need to make depositors whole" as if they care about small
| business when really they are just talking their own book.
|
| The real solution is that VCs should give a loan to all their
| startups so that they can make payroll. Isn't that their value-
| add? They should be the backstop for their investments. But
| instead they want the government to step in.
|
| It's another example of "socialize the losses but privatize the
| gains."
| logn wrote:
| In this case the gains are the interest rate of the checking
| account.
| gitfan86 wrote:
| Exactly, none of them are pointing out what percentage of the
| money that is currently tied up was going to be sent out as
| payroll for people making under 100k/year over the next 30
| days.
|
| If the Fed came out and said "We have reviewed all the
| depositors and their situations and we are funding 100% of
| payroll and basic operating costs needs for the next 90 days"
| The VCs would immediately come up with another reason why ALL
| depositors need to be made whole immediately.
| [deleted]
| bob1029 wrote:
| > The VCs would immediately come up with another reason why
| ALL depositors need to be made whole immediately.
|
| What do we think the end-goal of these VCs is?
|
| Hypothetically, why would someone want to see a run on SVB?
| How could you benefit from all of this?
| remote_phone wrote:
| Their goal isn't to see a run on SVB. But to save their
| investments they all told their startups to pull their
| money which cause svb to collapse. Now they want the rest
| of their money safe which is why they want a bailout.
| dgacmu wrote:
| Alternative non-paywalled source:
| https://apnews.com/article/silicon-valley-bank-bailout-yelle...
|
| "WILMINGTON, Del. (AP) -- Treasury Secretary Janet Yellen said
| Sunday that the federal government would not bail out Silicon
| Valley Bank, but is working to help depositors who are concerned
| about their money. ... "
| amelius wrote:
| > but is working to help depositors who are concerned about
| their money.
|
| Which is ... everybody?
| ellisv wrote:
| They should have used an em-dash.
|
| "working to help depositors--who are concerned about their
| money."
| chewz wrote:
| > but is working to help depositors who are concerned about
| their money.
|
| by providing emotional support, therapy, free adderall and
| opportunity to buy some long term government bonds at a
| discount...
| belter wrote:
| The first step would be to stop calling them Depositors. They are
| not and were never Depositors. That is what you have deposit
| boxes for...You do not have money at the Bank. You _loaned_ money
| to the Bank. That is why they pay you interest on it...
| synu wrote:
| Isn't that literally the definition of a bank depositor?
| belter wrote:
| Yes in the world of Finance, but the word has a different
| meaning, in the mind of said Depositors...The word is used by
| Government and Banks, as a misdirection into a false sense of
| security.
| belter wrote:
| For the downvoters... "International Monetary Fund - What Is a
| Bank?" -
| https://www.imf.org/external/pubs/ft/fandd/2012/03/basics.ht...
|
| ".... Banks are intermediaries between depositors (who lend
| money to the bank) and borrowers (to whom the bank lends
| money)..."
| sebzim4500 wrote:
| Your citation for why they aren't depositors refers to them
| as depositors. I'm confused.
| belter wrote:
| And your confusion is completely normal. An insidious
| action expressly used by the interested, in manipulating
| language for it's purposes. It has already been nicely
| addressed by Weinberg in his books.
|
| That is why every dry desert urban development in the
| middle of nowhere, with hardly any water for hundreds of
| miles, is called... _Watery_ Creek...That is why employees
| are sometimes called _business partners_ , that is why
| private investments funds are in some countries called
| _pensions_ , and finally the reason why creditors at banks
| are called _depositors_. To delude you into making you
| believe, you are or have more, than what you really are, or
| _might_ have.
|
| "The Secrets of Consulting" -
| https://www.linkedin.com/pulse/secrets-consulting-guide-
| givi...
| cjbprime wrote:
| Sounds like this commenter is not just arguing that
| language is being used incorrectly in this situation, but
| that the standard language and definitions are themselves
| propaganda terms.
|
| (Usually people are a little clearer about their intent to
| argue that.)
| belter wrote:
| Yes that is what I am saying. And agree, could have
| expressed it in a more clear way.
| stephen_g wrote:
| Amazing the IMF has a misconception of how banks work in
| their "basics" explanation!
|
| From the Bank of England: "[...] Where the stock of bank
| deposits comes from is often misunderstood. One common
| misconception is that banks act simply as intermediaries,
| lending out the deposits that savers place with them."
|
| 1. https://www.bankofengland.co.uk/-/media/boe/files/quarterl
| y-...
| belter wrote:
| No. The Bank of England has it wrong...
|
| "...Transactions on deposit accounts are recorded in a
| bank's books, and the resulting balance is recorded as a
| liability of the bank and represents an amount owed by the
| bank to the customer..."
|
| "Deposit account" -
| https://en.wikipedia.org/wiki/Deposit_account
|
| "Does The Money In Your Bank Account Really Belong To You?"
| - https://www.sgrlaw.com/does-the-money-in-your-bank-
| account-r....
|
| "...At the moment of deposit, the funds become the property
| of the depository bank...Thus, as a depositor, you are in
| essence a creditor of the bank. Once the bank accepts your
| deposit, it agrees to refund the same amount, or any part
| thereof, on demand..."
| auntienomen wrote:
| For most of the past decade, banks haven't been paying interest
| on deposits, because rates were so low.
| belter wrote:
| The value of the interest is not relevant to the truthiness
| of the concept. And zero is still a number, although some
| mathematicians might not agree...
| blobbers wrote:
| This is on the CFO and CEO to evaluate counter party risk.
|
| If the founders had put all their money in FTX because they
| figured they could get a better FTX checking account than SVB was
| offering, nobody would bat an eye at their failure.
| bradleyjg wrote:
| Bailing out the depositors is still a bailout.
| chewbacha wrote:
| It's an insurance payout, not a bailout. If someone totals my
| car the insurance doesn't say "well, that's the risk of owning
| a car" and pay nothing. Insurance exists for these scenarios.
| bradleyjg wrote:
| The insurance had an explicit policy limit. That's what the
| premiums were based on.
|
| Up to $250k per depositor isn't a bailout. A penny above that
| is.
| 206lol wrote:
| It's likely SVB has assets in excess of $250k per account.
| So if they are sold, I'd expect depositors to get at least
| $250k and possibly more, depending on how those assets are
| sold.
|
| It only becomes a bailout if the government pays beyond the
| sale of svb's assets.
| bradleyjg wrote:
| Yep, we are on the same page. No issue with an orderly,
| open market asset sale and pro rata distribution. That's
| how the system is supposed to work.
| thehappypm wrote:
| Depends where the money is coming from. SVB has lots of
| assets -- clearly not enough cash on hand for a bank run
| but they have lots of assets. Once those are liquidized
| depositors should get as much of their fair share as
| possible.
| a13n wrote:
| I don't agree. Depositors aren't necessarily at risk of
| bankruptcy/collapse. Depositors wouldn't be bailed out.
| Depositors would be made whole.
|
| SIVB is 100% at risk of bankruptcy/collapse. Saving SIVB would
| be a bailout for sure.
| nonethewiser wrote:
| Tautology
| remote_phone wrote:
| The only depositors at risk at startups. All regular people are
| made whole. And they are getting ~50% of their holdings in the
| next week. Why are VCs clambering for a bailout? The system
| works as designed. No need to do anything else above and
| beyond.
| lordfrito wrote:
| The lack of understanding here about how banks work is
| astounding. Are these the same people who feel it's their God
| given right to "move fast and break things"?
|
| Disruption is great. Too bad for the music industry. Too bad for
| journalism. Too bad for legacy taxi services, etc. Disruption is
| great, except when it happens to you?
|
| Aren't we all here in the business of managing risk? Or, after a
| decade of cheap money, has it just become all lip service?
|
| "It's not my fault!" [1]
|
| This recession is going to be brutal, but it's been a long time
| coming. Thank God money is going to start having value again.
|
| [1]
| https://y.yarn.co/9c4c1fa3-fb64-4132-b44f-7cde70eafd0f_text....
| azinman2 wrote:
| Disruption in the definition of Clayton Christensen as you're
| likely using doesn't apply to the failing of banks. Disruption
| is a theory about innovation and entrepreneurship. SVB didn't
| get disrupted by some new player who leapfrogged how banking
| works- they made poor choices for a world where interest rates
| went up.
|
| Having been a bank for 40 years with a great reputation, no one
| who held their money there expected a meaningful risk the bank
| would collapse. The same with AIG and any other major bank
| collapse for a long time player. Sure let those responsible
| have repercussions, but innocent account holders of America's
| future trillions of GDP, investment funds holding onto the
| money of pension accounts, farmers and wineries shouldn't bear
| the brunt of investments gone sour leading to a liquidity
| crunch.
|
| Note that 3 VCs taking out their cash quickly allowed the
| bottom to fall out.
| lordfrito wrote:
| Yeah not talking about bank "disruption" in the classic/rigid
| definition of the term.
|
| I'm more commenting on how the the general attitude of the
| tech entrepreneur (willing to take risks, to swing and miss,
| move fast and break things) has been cross pollinated over to
| the finance (DeFi, VC tech funds, crypto affiliated banks) to
| largely disastrous (but not wholly unexpected) results.
|
| What really bothers me is that these "financial geniuses"
| walk and talk (and in the case of SBF dress) like typical
| typical tech entrepreneurs, but when push comes to shove they
| are just the same old reckless wall street sociopaths trying
| to privatize profits and socialize the losses.
|
| Your classic tech entrepreneur had skin in the game, was
| willing to swing and miss, learn from their mistakes, and get
| up and try again. In a forum that claims to be full of "real"
| true-scotsman tech entrepreneurs, there seem to be a lot of
| people here that think/talk like wall street sociopaths.
|
| I feel like the last 5-10 years are full of more and more of
| these "jumped the shark" moments in the tech space (Theranos,
| WeWork etc). Innovation is dead. Low hanging fruit all
| picked. In it's place is a new priesthood, full of grifters
| who preach innovation while robbing us blind and getting
| bailed out.
|
| To your point about "40 year stable banks", yeah it really
| sucks that normal people are caught up in this mess. But
| something tells me that what happened at this bank is unique
| to the tech/disruption space/narrative I mention above.
|
| Personally I believe the contagion will be limited to poorly
| run banks making bad/reckless decisions. I guess the next few
| days/weeks we'll know for sure if this is a limited thing, or
| a widespread problem.
|
| I sure hope people go to jail over this.
| azinman2 wrote:
| There is crossover in finance with crypto web3
| blahblahblah. But I wouldn't conflate the larger innovation
| in tech with that. It and VR/AR have gobbled a lot of
| attention, but meanwhile we're on the edge of what will be
| a total transformation in the next 10-20 years with AI. I
| didn't think we'd be here in 2023 but it's quite clear the
| rate of innovation is now insane. That's just one area -
| just about every industry has tech running through it now
| in a way that wasn't the case 10 years ago. A lot of it is
| quite boring so you don't see it in the news, but that
| doesn't mean it's not happening or these companies are scam
| or worthless... far from it.
|
| I don't think SVB was subject to the SBF type person, or
| certainly it wasn't the case their money was tied up in a
| blockchain. I don't think it's fair to call them grifters
| even if they fucked up by building a model for a pre
| inflation world.
|
| I'm fine letting SBF et al go bust; it was pure
| speculation. But pension funds, hundreds of diverse
| startups, wineries and farmers don't deserve to go down
| with one of the top 20 biggest banks. The domino effect is
| too massive.
| dools wrote:
| Good, but I expect to see much less techno-libertarianism on this
| forum as a result.
| krapp wrote:
| I know memes are verboten here but...
| https://www.youtube.com/watch?v=_n5E7feJHw0
| NordSteve wrote:
| It is shockingly easy for a company to mitigate the bank failure
| risk.
|
| 1. Open account at Fidelity 2. Purchase brokered CDs in
| denominations <$250K in a ladder matching your cash flow needs
| (you have a cash flow spreadsheet, don't you?)
|
| https://www.fidelity.com/fixed-income-bonds/cds
|
| It's not like the risk of banks was a secret. Click on the
| "Risks" tab at the link above -- it's near the top of the list.
|
| This strategy works for raises of up to several million dollars.
| If you've raised more than that, spend a bit of money on someone
| to help you set up a treasury ladder, which scales to any size of
| raise.
| cowsandmilk wrote:
| > spend a bit of money on someone to help you set up a treasury
| ladder, which scales to any size of raise.
|
| This is effectively what you are hiring a bank to do for you,
| but with them determining over large sets of depositors what
| the cash flow needs are expected to be. The focus of your
| company isn't building these investment instruments for your
| cash. Spending time on this is a distraction for most start
| ups.
| manuelabeledo wrote:
| I see a lot of unexpected saltiness and clear misconceptions in
| any thread about SVB.
|
| "Depositors shouldn't get anything beyond the insured $250,000".
| Then what do we do with the billions in remaining assets?
| Appropriate them, and leave small and mid businesses hanged to
| dry?
|
| "This is a bailout". It would be if shareholders were to get
| their money back, which doesn't seem likely. The government will
| use the bank assets to make customers, not owners, whole.
|
| _Generic screeching against the tech world_. I get the
| schaudenfreude, but this will not hurt big tech and VCs as much
| as tens of thousands of small businesses, and the people employed
| at them. Some billionaires will be upset at some relatively
| insignificant losses, while hundreds of thousands may lose their
| jobs.
| mlindner wrote:
| There's a middle ground here that few people seem to have.
|
| 1. There should be no bailout.
|
| 2. The bank had a ton of assets and those assets still belong
| to the depositors.
|
| 3. The depositors shouldn't necessarily be made whole beyond
| their $250,000 insured amount, but denying them the bank
| deposits is also wrong. Getting 80 cents on the dollar for
| their deposits seems completely fine for example, or whatever
| that number turns out to be based on remaining assets.
|
| 4. Nothing is deserved to the bank owners/shareholders. If
| there happens to be more assets than there was deposits, then
| this money can go to owners/shareholders.
| theGnuMe wrote:
| That's how it actually works. The FDIC administers the asset
| sale.
| HervalFreire wrote:
| [dead]
| sbaiddn wrote:
| Dont confuse the issue. _No one_ has a problem with creditors
| getting as much of their money as possible by selling assets.
| The problem is that SVB 's book value of assets is far smaller
| than the debts. Imagine their value on a firesale.
|
| the creditors then take a haircut. It's basic bankruptcy.
|
| What people oppose is taxpayers absorbing the losses beyond
| $250 000 as promised, and there's a _very_ good reason for
| this: its another example of privatizing profits and
| socializing losses. In other words, it encourages risky
| behavior because they 're gambling with the house's money.
|
| Some argue, and they have an _excellent_ point that if SVB 's
| creditors aren't bailed out it could trigger a contagion. Thats
| a formidable risk. However, we already did mass banking sector
| bailout _less than 15 years ago_ and it turns out all it did
| was incentivize irresponsible behavior.
| hn_throwaway_99 wrote:
| Hallelujah, parent's comment is a straw man. I've been
| vehement against taxpayer money being used to make depositors
| whole, but nobody is saying they shouldn't be paid out of the
| assets of the bank.
|
| I'd also be in favor of the feds helping to orchestrate a
| bailout by getting purchased by another bank/banks, or doing
| whatever it takes to get depositors access to as much of
| their money as quickly as possible.
|
| But all this does is incentivize "if you're going to blow up,
| make sure you threaten the whole economy so you can use
| hostage tactics to get a payout." The feds wouldn't be doing
| shit if this were some small bank with no contagion risk.
|
| And the political cronyism of this, on both sides, is
| nauseating. There was a tweet thread by a startup founder
| from Ohio, basically making the argument "I'm a small
| business owner from middle America Ohio, not some fat cat
| Silicon Valley tech bro." To be clear, absolutely nothing
| against her for posting this (on the contrary, she actually
| sounded pretty amazing with how she founded her business),
| but it sucks that she has to play this "Hey, I'm in your
| tribe too, I'm not a member of that evil other tribe" in
| order to curry favor with the political class to get a
| bailout.
| sbaiddn wrote:
| To be completely open, I wouldn't even be opposed to
| bailing all the depositors out _if strict conditions are
| placed that disincentivize playing with house money_
|
| I haven't come up with a way to do this [1], nor has anyone
| else. So, we're back at square one: I can't bail you out
| with out encouraging destabilizing destructive behavior.
|
| [1] well I have, but public executions for economic crimes
| are unconstitutional.
| gruez wrote:
| >What people oppose is taxpayers absorbing the losses beyond
| $250 000 as promised, and there's a very good reason for
| this: its another example of privatizing profits and
| socializing losses. In other words, it encourages risky
| behavior because they're gambling with the house's money.
|
| But by not bailing them out, you're punishing the depositors,
| which I wouldn't exactly characterize as "gambling with the
| house's money".
| sbaiddn wrote:
| If a bank is giving depositors unparalleled benefits to
| bank with them [1], alarm bells should ring.
|
| Let me be blunt. The last place I'd do my personal banking
| is the local bank of a region who's mantra includes: "move
| fast and break things".
|
| [1] benefits include interest rates above average or offer
| to finance your start up.
| gruez wrote:
| > If a bank is giving depositors unparalleled benefits to
| bank with them [1], alarm bells should ring.
|
| >[1] benefits include interest rates above average or
| offer to finance your start up.
|
| Can you be specific? Which parts of SVB's offerings were
| suspiciously generous? You mention interest rates, so I
| checked their archived page as of feb 23 and found that
| they were offering 4.5% for their money market account.
| This seems roughly consistent with market offerings[1].
| You also mentioned "offer to finance your start up", but
| is that really supposed to be suspicious? That's
| literally one of a bank's primary functions.
|
| [1] https://www.economy.com/united-states/money-market-
| rate
|
| >Let me be blunt. The last place I'd do my personal
| banking is the local bank of a region who's mantra
| includes: "move fast and break things".
|
| This feels like something that's only obvious because of
| hindsight. You could easily make an equally compelling
| case that you shouldn't bank with banks from new york,
| because that's the financial capital of the US, and it's
| the evil bankers that caused the 2008 financial crises.
| stcredzero wrote:
| "Generic screeching against the tech world."
|
| This is why direct democracy can't work for long. The average
| voter has a hazy and sometimes downright broken model of
| reality. I don't know how else to describe someone who wants to
| get back at Facebook by ganking the paycheck of some engineer
| at a 10 person startup.
| atomicnumber3 wrote:
| It's been awful. Everyone on Reddit is so hopelessly confused
| about the issue that they can't even complain about it right.
|
| "No bailouts!"
|
| Nobody has been (seriously) talking about them. Shareholders in
| SVB are toast 100%. Debtors too probably.
|
| "We should nationalize banks that fail!"
|
| That's basically what receivership is. We just don't call it
| nationalizing because the government just wants to make
| depositors whole and then get their hands out of the pie.
|
| "We need more (or less) regulation!"
|
| The FDIC stepping in right now - where it appears the bank is
| solvent but can't satisfy liquidity requirements - is exactly
| when it should. SVB as a business failed but (it appears)
| depositors are being made whole by the sale of the banks
| assets. The system appears to have worked while also not
| cutting the bank prematurely (nobody seems to be complaining
| that SVB _wasnt_ in major trouble).
| colinprince wrote:
| SVB sought - and received! - reduced scrutiny of the
| institution, alluding to the "low risk profile of our
| activities and business model"
|
| https://www.theguardian.com/business/2023/mar/11/silicon-val...
|
| https://archive.is/aSx6E
| gerad wrote:
| I just don't understand why folks on the internet are so
| passionate about the depositors being hit by this. In terms of
| avoiding moral hazard they are about as far down the list as
| possible, and bankruptcy law supports that.
|
| First stock holders get wiped out (common then preferred), then
| debt holders (folks who have lent money to SVB won't get their
| money back), only then would it hit depositors - and in the
| case of a traditional bank it usually wouldn't hit them hard
| since most funds are FDIC insured.
|
| I can imagine being incensed about stockholders and debt
| holders being made whole, if that were to happen - since then
| people would learn the wrong lesson here. But nobody think
| that's going to happen.
|
| If depositors aren't protected, then it's going to have a lot
| of downstream impacts (people won't make payroll, and employees
| who have no responsibility won't get paid). And again, it's not
| like folks who chose were gambling with a shady bank to get
| high interest rates, in many ways SVB was considered the least
| risky and most conservative bank to use as a startup. At least
| that's why we chose it.
| bentlegen wrote:
| The C-suite paid themselves millions of dollars via bonuses
| and stock sales right before insolvency. Executives got paid.
| What's to stop future bankers from running the same playbook?
| (We can debate that this the stock sale was
| premeditated/signaled months in advance, but the stock had
| already declined 80% from its 2021 peak and they surely knew
| about the tough liquidity position months ago -- external
| observers drew attention to this back in January).
|
| Note, one of the SVB executives was the former Lehman
| Brothers CFO in 2007, just one year prior to that
| institution's collapse in 2008. What did he learn, exactly,
| besides how to get out in time?
|
| https://www.foxbusiness.com/economy/silicon-valley-bank-
| exec...
| ericb wrote:
| Right, but those people are not getting bailed out. They're
| losing ownership of their bank!
| gruez wrote:
| >The C-suite paid themselves millions of dollars via
| bonuses and stock sales right before insolvency.
|
| This is highly misleading. The bonuses were
| calculated/awarded from last year. The stock sales were
| pre-scheduled.
| EFreethought wrote:
| "Last year" as in the year they had no Chief Risk
| Officer? Got it.
| gruez wrote:
| I don't see how that's relevant. The leadership team at
| SVB undoubtedly made a bunch of dumb decisions and they
| deserve to be raked over the coals for that, but there's
| no need to make the unsupported claim that the executives
| were looting the place a few days leading up to the
| collapse.
| EFreethought wrote:
| We can't replay history, but maybe if they had a CRO,
| they would not be in this mess. They had time to set
| bonuses, they had time over the past few years to lobby
| for looser regs, but apparently a CRO was just too much
| bother.
| shjake wrote:
| I think those were "just" the yearly bonuses all employees
| receive.
| nerdponx wrote:
| I don't know if there is any regulatory authority to do
| this, but I think those executives should have their
| bonuses clawed back to pay depositors.
| stephen_g wrote:
| Hopefully those might be able to be clawed back?
| alostpuppy wrote:
| Can that be clawed back?
| idopmstuff wrote:
| How does making the depositors whole affect any of that,
| though?
| mym1990 wrote:
| I think the argument is that if I can start a bank and
| depend on the government to make my depositors whole in
| the event of a failure, then I can act/invest in a high
| risk manner to get more yield, while also paying me and
| my executive team millions in the process. If or when
| things hit the fan, my depositors are paid, I am paid,
| and the investors are the collateral.
| [deleted]
| grey-area wrote:
| So to punish them, we need to punish depositors?!?
| matheusmoreira wrote:
| Actually, yes. Absolutely. Maybe with enough punishment
| these depositors will stop stuffing the accounts of these
| fat cats full of cash for them to "invest" and lose
| everything with.
|
| How many global economic meltdowns do we have to go
| through before people learn that banks are literally the
| root cause of so many of society's problems? Depositors
| aren't being punished enough if they're still buying into
| this system. They keep feeding the beast and complaining
| when it eats them.
| nerdponx wrote:
| _Every_ bank exec is a fat cat to some extent. People and
| businesses need banks no matter what, and they shouldn 't
| be required to do exhaustive due diligence on every bank.
| This is the whole purpose of regulation; everyone
| benefits from oversight.
| matheusmoreira wrote:
| > People and businesses need banks no matter what, and
| they shouldn't be required to do exhaustive due diligence
| on every bank.
|
| They're already required to do KYC/AML due dilligence on
| normal human beings. Why shouldn't they be required to do
| the same for the banks they trust their fortunes with?
| nerdponx wrote:
| Who is? Random SaaS and biotech startups?
| bentlegen wrote:
| I didn't say that? I asked, what's to disincentivize
| executives if the Fed backstopped all depositors money,
| now and perhaps in perpetuity? (Forgive me if I
| misinterpreted your position here. I have also edited
| this post for clarity.)
| dmix wrote:
| Which plan exactly? Yellen specifically said they have no
| interest in bailing out the bank itself and only care
| about depositors.
|
| > "Let me be clear that during the financial crisis,
| there were investors and owners of systemic large banks
| that were bailed out . . . and the reforms that have been
| put in place means we are not going to do that again,"
| Yellen said on Face the Nation.
|
| > "But we are concerned about depositors, and we're
| focused on trying to meet their needs."
| bentlegen wrote:
| I think there's confusion in this thread, as some are
| advocating that depositors be made fully whole, and some
| are interpreting Yellen's comments to mean that's what
| will happen.
| grey-area wrote:
| Other laws, which have nothing to do with depositors and
| how to treat them. I'm confused as to why you think these
| two issues are linked.
|
| I would hope these execs are prosecuted and any bonuses
| clawed back but that would be under the purview of a
| different agency (sec) not fdic, and is not an immediate
| concern, whereas a massive financial shock and 100s of
| companies closing due to lack of funds is.
| tome wrote:
| I think the implication is that if you make depositors
| take some of the risk then they'll be more proactive in
| their oversight of their banks' executives. I'm not sure
| how realistic that assumption is in practice though ...
| bentlegen wrote:
| I'm not a lawyer, but it's unclear to me - a random
| internet observer - that anyone performed anything
| illegal. It strikes me more as a bet gone colossally
| wrong, basic human mismanagement, capitalism in action,
| etc.
| baq wrote:
| Depends on the deals with startups and their founders.
| Look up tied selling.
| csallen wrote:
| Aren't the execs in this case losing the vast, vast, vast
| majority of the money they old in the bank? I haven't
| seen anything that makes it seem like they're getting out
| of this unharmed, and especially not at anyone else's
| expense.
|
| I also don't know how refusing to make depositors whole
| would disincentivize bas behavior by execs, anyway? Seems
| like two unrelated issues.
| lotsofpulp wrote:
| The depositors may have been able to borrow money at
| excessively favorable terms. For example, the bank
| lending money to businesses that otherwise would not have
| been lent to, or lent to at a higher interest rate. Or
| home mortgages for the business's employees at lower
| rates, subsidized by the bank's mismanagement (taking
| excess risks).
| ummonk wrote:
| How would punishing depositors disincentivize this
| behavior from executives?
| prepend wrote:
| So the play is to use funds on me as the manager instead
| of depositors. Then depositors get covered and I, the
| manager, keep my earnings.
|
| It's not that we punish the depositors but the scheme is
| set up that depositors suffer.
|
| Imagine the mob stole all that money. It's not punishing
| the depositors to not pay them back. The mob punished the
| depositors by stealing.
|
| If I don't buy homeowners insurance and some arsonist
| burns down my house, I'm out $100k to rebuild. Is it
| punishing me if the government doesn't bail me out? The
| government isn't punishing me, the arsonist punished me.
|
| If we want government coverage then we should enact laws
| to cover this kind of thing and raise taxes and fees
| accordingly. We can't enjoy the benefits of low
| regulation when it makes us money and then ask for
| coverage after the fact. After we've reaped the benefits
| of no regulation.
| grey-area wrote:
| What I'm saying is that the management are in no way
| impacted by what happens to depositors, these are
| separate issues.
|
| If you want to stop mismanagement like this don't repeal
| banking regulations and instead regulate banks properly,
| that has nothing to do with that the fed decides to do
| for depositors to stop contagion and ripple effects in
| other industries.
| prepend wrote:
| And what I'm saying is that managers knew this and paid
| themselves with funds that could have went to depositors.
| Depositors have the same right to be made whole as any
| other victim of a crime.
|
| The government has fdic and insures up to $250k. That's
| what our taxes paid for. If we wanted to insure
| depositors for greater amounts, we would have paid more
| taxes.
|
| This was an eyes wide open situation. Depositors could
| have managed their large sums of cash better. They
| didn't, choosing to save money. Now it sucks.
|
| Another analogy would be that if a couple skipped life
| insurance and leased a Porsche. And now the wage earner
| has been murdered and the remaining spouse is asking the
| government to pay for their dead spouses wages, while
| still driving the Porsche.
| grey-area wrote:
| This wasn't a crime, it was a bank run because this bank
| apparently wasn't great at managing risk and the risk
| free assets they bought are not as safe as they used to
| seem when they bought them now that rates have risen
| substantially, it could (and probably will this week)
| happen to other banks like First Republic. If the fed
| dithers today that seems a lot more likely.
|
| EDIT - seems Signature bank has failed as well today, and
| the Fed has decided to guarantee deposits at both.
| valleyer wrote:
| > The government has fdic and insures up to $250k. That's
| what our taxes paid for.
|
| FYI, FDIC insurance coverage is funded by premium
| payments from covered banks, not from "our taxes".
|
| https://www.fdic.gov/about/what-we-do/index.html
| humanizersequel wrote:
| >If I don't buy homeowners insurance and some arsonist
| burns down my house, I'm out $100k to rebuild. Is it
| punishing me if the government doesn't bail me out? The
| government isn't punishing me, the arsonist punished me.
|
| The distinction here is that in this metaphor, the bank
| managers are both the homeowner and the arsonist.
| fallingknife wrote:
| Fake news. The largest bonuses paid were $140,000 to
| managing directors, which is just bankerese for VP. Bonuses
| were already scheduled to be paid and earned for work done
| in 2022.
| bentlegen wrote:
| According to Bloomberg, the CEO sold 3.6 million dollars
| worth of shares days before insolvency. The sale was
| scheduled back on January 26th.
|
| Around the same time, analysts were commenting negatively
| about SVB's earnings and liquidity position.
|
| Please correct me if I've misinterpreted.
|
| https://www.bloomberg.com/news/articles/2023-03-10/svb-
| chief...
|
| https://seekingalpha.com/article/4573087-svb-
| financial-30-pe...
| madamelic wrote:
| The very first line should tell you how little the
| article author knows how it works:
|
| > Greg Becker used prearranged stock-trade plan to sell
| shares
|
| He didn't "use a prearranged plan", a plan went into
| action and sold the shares. Becker had already filed
| paperwork to sell those shares at that specific time.
|
| To my recollection, that was 10% of his shares. Becker
| wasn't planning months in advance on the bank smashing
| into a wall precisely a few days after he sold a measly
| 10%.
| shjake wrote:
| It's not unimaginable that he managed to delay the bad
| news from coming for a couple of days before the sale
| went through though.
| madamelic wrote:
| I would strongly assume that require not only the
| cooperation of more than just him but also many people
| including those who had no real gain for doing that.
|
| Even if both the CEO and CFO conspired to hide this, more
| than just them would know about the trouble and them
| conspiring to do this. Those individuals would now have
| no reason not to whisteblow immediately.
|
| I find conspiracies, especially non-governmental, about
| large organizations incredibly hard to believe because of
| how difficult they would be to pull off.
| bentlegen wrote:
| You're making this sound like some Ocean's 11-level
| heist, and then discounting the premise you've created as
| being absurd.
|
| It doesn't have to be that complicated. Perhaps he saw
| that the bank was in trouble and made a decision to sell
| shares when the company was at a 52 week low. His
| calculus could just be: "with the information I possess,
| this price could go a lot lower." He may not have
| foreseen an insolvency event, or perhaps he knew it was a
| risk and he sought to hedge it. Or maybe he just sold it
| randomly at a low price ... because.
| yeahsure22 wrote:
| I don't know if the work they did in 2022 really
| warranted a bonus though. Doesn't seemed to have worked
| out for the shareholders.
| rodgerd wrote:
| > it's going to have a lot of downstream impacts
|
| When Netflix started sacking animators and animation studios
| to use AI startups instead, there are downstream impacts.
|
| When bookstores shut up shop because of Amazon there were
| downstream impacts.
|
| When Dell and HP lay people off because it's hard to sell
| against Azure and AWS, there are downstream impacts.
|
| You're going to have a hard time arguing that the sector
| responsible for disrupting others' live deserves special
| consideration beyond what already exists - FDIC plus
| liquidated assets with a likely haircut - particularly when
| those companies appear to have been mismanaging their own
| money.
| WkndTriathlete wrote:
| > If depositors aren't protected, then it's going to have a
| lot of downstream impacts
|
| If depositors with deposits above the FDIC insurance limit
| _are_ protected then there will be nothing stopping this from
| happening repeatedly in the future. Depositors that exceed
| the FDIC insurance limit should be taking a haircut so they
| learn to do better risk analysis of their bank or purchase
| auxiliary deposit insurance on their assets at a bank or
| both. VCs/investors in the companies whose deposits exceed
| the FDIC insurance limit should take a bath for pushing one
| specific bank with bad risk management. (How this fact
| escaped VCs/investors is beyond me. I'm not a risk manager or
| investment manager by any stretch of the imagination but even
| I would recognize that investment in long-term near-0% bonds
| would have nowhere to go but down.)
| KptMarchewa wrote:
| >If depositors with deposits above the FDIC insurance limit
| _are_ protected then there will be nothing stopping this
| from happening repeatedly in the future.
|
| The fact that is stopping this - is the fact that only
| people who are earning money on risky strategies -
| shareholders - are being wiped the first.
|
| Depositors are NOT investors and do not earn a premium on
| successful risky bank strategies.
| ivalm wrote:
| Depositors are (senior) creditors and take on credit
| risk. Similar to bond holders.
| dangero wrote:
| This bank run happened based on fear of the scenario we are
| now in. No bank can withstand a bank run due to fractional
| reserve ratios.
|
| If the depositors lose big then that will increase this
| fear going forward.
|
| In other words, if all depositors are covered there is no
| longer a substantial fear of a bank run elsewhere. That's
| how it stops it from happening again.
| ivalm wrote:
| Realistically, this bank run occurred because the
| depositors were highly correlated. Other banks do not
| have such a correlated depositor base.
| matheusmoreira wrote:
| Simply because "depositing" money at a bank is not supposed
| to be a safe operation. You're lending money to the bank.
| There is risk involved. If the government made it look like
| there's no risk, then someone is paying to offset that risk.
| I don't want to be the one paying for it.
| thesimon wrote:
| > If depositors aren't protected, then it's going to have a
| lot of downstream impacts
|
| But doesn't that hold true for basically every situation
| where private companies lose money?
|
| If my employer goes bust, then there is also downstream
| impact. FAANG laying off workers also has a lot of downstream
| impact.
| yeahsure22 wrote:
| Why do the rules keep changing after the game has been
| played? And why does it seem to always favor people who are
| already wealthy beyond imagination? The rules were 250k
| insured. If you had excess deposits, additional coverage
| could easily be purchased.
| mym1990 wrote:
| I am not sure why you think the 250k limit is the end of
| the road in what is an extremely complex process. The 250k
| is so that depositors can be paid out quickly while the
| rest of the process gets going, which could take months or
| years.
|
| In SVBs case the 250k payouts will only account for 5% of
| the deposits. SVBs assets, while hampered, are still
| substantial. What do you propose is done with those assets?
| ec109685 wrote:
| This is what will be done:
|
| "The FDIC will pay uninsured depositors an advance
| dividend within the next week. Uninsured depositors will
| receive a receivership certificate for the remaining
| amount of their uninsured funds. As the FDIC sells the
| assets of Silicon Valley Bank, future dividend payments
| may be made to uninsured depositors."
| plonk wrote:
| How were these "the rules?" The FDIC's job is to make the
| bank's customers as close to whole as possible. Where would
| the bank's assets go otherwise?
| lolinder wrote:
| No one who knows what they're talking about is objecting
| to the bank's remaining assets being distributed between
| depositors. But there's talk of taxpayer money being used
| to make depositors 100% whole regardless of how many
| assets remain, and I think that's where the controversy
| is.
|
| Everyone has always known that $250k is the max that's
| guaranteed to be given back to you, and the idea of the
| government paying back more out of taxpayer funds because
| a lot of VCs gave their startups bad advice rubs people
| wrong.
| peyton wrote:
| Who's talking about using taxpayer money?
| lolinder wrote:
| Y Combinator, in their petition, says that they want at
| least small business depositors to be made completely
| whole, without any caveats about how many assets are
| left. The only way this works is with taxpayer funds.
|
| > Small business depositors at Silicon Valley Bank should
| be made whole. Regulators need to conduct a backstop of
| depositors.
|
| https://www.ycombinator.com/blog/urgent-sign-the-
| petition-no...
| rodgerd wrote:
| @jason , @sama , the current CEO of YC, a general
| clusterfuck of some of the richest and most powerful
| people in the US economy?
| ouid wrote:
| Deposits in a bank are not assets that you can pay out to
| shareholders in bankruptcy. it doesnt matter how you've
| organized your balance sheet internally, those liabilities
| come first _or you arent a bank_.
| HervalFreire wrote:
| [dead]
| tsimionescu wrote:
| > people won't make payroll, and employees who have no
| responsibility won't get paid
|
| This gets repeated over and over, but just like depositors
| have the highest priority to a failed bank's assets, so do
| employees of any failed company.
|
| So, if a company goes bankrupt because it can't access funds
| stored with a bank, first stockholders would get wiped out,
| then debt holders, and only then employees (when talking
| about salaries already owed - of course, the company can fire
| staff to try to avoid bankruptcy).
| gerad wrote:
| It gets repeated over and over again because if SVB money
| is locked up for weeks/months while they unwind positions
| startups won't be able to make payroll.
| baq wrote:
| Depositors will get 50% this week, the bonds are already
| sold. The loan book is more... interesting.
| MrMan wrote:
| I am very interested in how that toxic loan portfolio is
| valued.
| tsimionescu wrote:
| So they will use cash flow or sell assets. The biggest
| risk is large coordinated layoffs affecting the job
| market, but there are other ways the government can
| intervene to protect individuals if that gets too dire.
| watwut wrote:
| Depositors are protected exactly as any other depositors and
| there are solutions to the protection ceiling. Like insured
| cash sweep.
|
| That VCs forced the small companies to operate in less safe
| way and gave them bad advice is 100% fault of these. I do not
| know why it was so, but this really seems like the case of
| "we want benefits of minimal regulation and getting better
| protection then everyone else gets from the goverment".
|
| It does rubs people wrong when you are all about disruption
| and regulation bad, but first thing you do in case of failure
| is governmental bail out for large accounts.
| pcl wrote:
| The $250k is the protection _floor_ , not the ceiling. The
| FDIC guarantees that $250k, but SVB has assets well beyond
| $250k per account.
|
| The FDIC is in the business of protecting depositors. So it
| will pay out the floor immediately as a matter of course,
| and then will continue to use the tools it has available
| and the remaining assets of SVB to pay out more -- perhaps
| 100%, perhaps some amount less -- to depositors.
| roganp wrote:
| It will be less than %100, because of the unrealized
| losses on SVB's bond portfolio. Regardless of the amount,
| there will be delays in returning those funds as FDIC
| liquidates.
| shjake wrote:
| If they manage to somehow talk another bank into buying
| what's left of SVB it might be the full 100%.
|
| It's not yet clear that won't happen.
| baq wrote:
| Yes. FDIC is very persuasive though, as evidenced in the
| past 15 years.
| rayiner wrote:
| Why shouldn't depositors learn a lesson that they should get
| additional insurance beyond the $250,000?
| ouid wrote:
| Being at the top of the line in bankruptcy proceedings is
| _the law_. So they shouldn 't be generally subject to
| lessons from the government that go beyond that...
| Denvercoder9 wrote:
| Nobody is saying that depositors shouldn't be at the top
| of the line. They're saying that if there's not enough
| money to pay back even them, the goverment shouldn't jump
| in to make up the shortfall (beyond the $250K it has
| insured).
| ouid wrote:
| parent comment is in response to OC laying out the
| standard payment schedule for bankruptcy proceedings...
| nasseri wrote:
| If the lesson you want corporate depositors to learn is
| that in the United States, any dollar beyond 250K in an
| account can evaporate overnight, than be prepared for a lot
| more bank runs in the immediate future.
| prepend wrote:
| The lesson is to mitigate this risk with insurance,
| account structures and other things.
|
| I think the lesson is also don't bank with banks doing
| shady, dumb things. And that's a valuable lesson that
| people with over $250k should already know and not need
| to be taught.
| JamesBarney wrote:
| What did SVB do that was shady and dumb?
| [deleted]
| [deleted]
| shjake wrote:
| Because the bank has more than enough assets to payback at
| least 70-80%. Are you suggesting that money should be
| appropriated by someone just to teach them a lesson?
| rayiner wrote:
| No, but I understand the phrase "be made whole" to mean
| that depositors should not face the risk of losing that
| 20-30%. They should take some "hit" as OP put it above.
| joe_the_user wrote:
| _I just don't understand why folks on the internet are so
| passionate about the depositors being hit by this._
|
| I'm not at all passionate about the depositors. I dislike
| them but understand that screwing them would ripple across
| the entire world. I dislike banks and corporations but having
| many/most suddenly bankrupt would not serve me.
| prepend wrote:
| > just don't understand why folks on the internet are so
| passionate about the depositors being hit by this.
|
| I think most of America can't even imagine having over $250k
| in an account. So people with this much wealth asking for a
| bailout is literally rich people asking for coverage because
| they did something dumb (banked with a bad bank, didn't
| account for risk, didn't insure, didn't manage funds).
|
| It's not hate so much as it's apathy and surprise as the ask
| for money. It's like those millionaires who wept because they
| lost money with Madoff and they wanted the payout for all
| their earnings they had "made" over the years.
| shjake wrote:
| It seems to be only a question whether they will receive
| 80-90% or the full 100% though.
| kristjansson wrote:
| This cannot be said enough times. FDIC insurance is only
| the absolute floor on recovery. SVB depositors might
| (might!) face a haircut, but it'll be one worth of the
| name.
| ummonk wrote:
| That makes a big difference though. The risk of losing
| 10-20% (or even of getting back the full 100% but only
| after a few months) with no reward for the risk taken
| would be enough to drive depositors away from regional
| banks and into the mega-banks.
|
| If deposits aren't backstopped quickly, it won't be
| startups taking the main brunt of this - it will be other
| regional banks that see bank runs.
| namuol wrote:
| > It's like those millionaires who wept because they lost
| money with Madoff and they wanted the payout for all their
| earnings they had "made" over the years.
|
| Are you genuinely making this comparison or projecting what
| this looks like to the average American?
|
| The people who will be hit hardest by this aren't "dumb"
| depositors of SVB, they're employees and businesses that
| "banked with a bad bank".
|
| Blame the cowardice of the VCs that triggered the bank run
| and the arrogance of the bankers at SVB, blame to a lesser
| extent the businesses that banked with SVB maybe, but don't
| tell me "serve's 'em right" for the employees who face
| furlough or layoffs.
| mym1990 wrote:
| People asking for money back from Madoff were _investors_ ,
| which is completely different from _depositors_ asking for
| their deposits back.
| [deleted]
| yibg wrote:
| People don't think businesses have more than 250k in
| accounts? How do restaurants buy inventory, pay workers
| etc?
| _hl_ wrote:
| It's mostly businesses though, not people. If you have >1
| employee you def. should have at least 250K in the bank.
| prepend wrote:
| Not really. If you have 25 employees, you probably need
| $75-150k to make payroll every two weeks.
|
| You would cover this through rotating receivables through
| accounts. And you'd likely have multiple accounts to
| avoid the $250k threshold.
|
| My local bagel store owner talks about this and has
| different accounts for different purposes. And he banks
| with some national level bank and still splits money
| across accounts.
|
| It's not a good idea to have large amounts of cash
| sitting in single accounts.
|
| If you have two employees then you don't need much cash
| in an account at all.
| bart_spoon wrote:
| Almost everyone in America works for a company with over
| $250k in their coffers. The point isn't making depositors
| whole for the sake of uberwealthy individuals, it's for the
| sake of ensuring that companies are able to pay their
| thousands of regular employees.
| madamelic wrote:
| > So people with this much wealth asking for a bailout is
| literally rich people asking for coverage because they did
| something dumb
|
| Not people. Businesses.
|
| SVB, to my knowledge, mostly consisted of businesses with
| some well-off individuals mixed in.
|
| If we want to punish rich people for the crime of being
| rich, SVB is likely a bad battlefield because zero-ing out
| its customers will almost entirely hurt employees who are
| generally not wealthy.
| prepend wrote:
| Businesses owned by rich people.
|
| I don't think we should punish the rich for being rich.
| But we should reward the rich for being stupid (ie, not
| managing cash risk).
|
| These companies with cash flow issues have rich
| investors. YC and other VCs. They have ways to deal with
| this loss in the private sector. Or they can go out of
| business.
| ivalm wrote:
| Depositors aren't being zeroed out, they will just maybe
| take a haircut. I do hope FDIC finds a way to unfreeze at
| least meaningful fraction by tomorrow so payroll/etc can
| be met.
| newaccount2023 wrote:
| > I just don't understand why folks on the internet are so
| passionate about the depositors being hit by this
|
| The rest of America hates Silicon Valley like they hate Wall
| Street
| violenceislaw wrote:
| [dead]
| foobiekr wrote:
| This is true and basically deserved.
| ivalm wrote:
| Depositors are senior creditors. Junior creditors should be
| wiped first, but if there isn't enough money to pay senior
| creditors then it makes sense they will get back less than
| par.
| JumpinJack_Cash wrote:
| > > I just don't understand why folks on the internet are so
| passionate about the depositors being hit by this
|
| Well if you want to go down to the nitty gritty of it,
| depositors are competitors for stuff, especially in San Jose
| and San Francisco where every square inch of stuff (any
| stuff) is super-expensive.
|
| The ones complaining and taking time to argue against any
| involvement of govt. in SVB are people and institutions who
| didn't hold any funds in SVB but think or have reason to
| think that their competitors do
| yibg wrote:
| One thing I don't get. People are making a few claims:
|
| 1) anything beyond 250k is a known risk, you should've spread
| the money around.
|
| 2) why should tax payers be on the hook for more than the 250k
| amount? The companies took the risk and lost.
|
| But if everyone spread their money around and kept each account
| less than 250k. Then in effect isn't everyone insured for
| everything anyways?
|
| Imagine there is a service that seamlessly took your total
| amount and spread it between various accounts for you to keep
| each account balance less than 250k. Now the totality of bank
| deposits are in effect all 100% insured. How is this now
| different from insuring all deposits regardless of size besides
| adding a middleman?
| chrisbolt wrote:
| The deposits are spread over a more diversified set of banks
| and the risk is reduced.
| jmull wrote:
| Hang on...
|
| The issue here is _not_ about whether the government should
| seize SVB assets rather than return them to depositors.
| Hopefully _no one_ is arguing for that.
|
| (The issue is about what the government should do -- if
| anything -- about (1) shortfalls depositors may face; (2)
| delays depositors may face in accessing the funds that do
| remain.)
| VLM wrote:
| One of the strangest misconceptions I've seen on HN and in
| general is some variation on the incorrect theme of "all the
| money is gone except the FDIC insurance".
|
| The last I saw from Moody's was they're expecting "eighty-
| something" percent recovery rate, assuming no bailout or rule
| flexibility and no last minute forced merger.
|
| This isn't like FTX where all the money is gone and ha ha
| you're not getting a penny of it back, ever. The SVB situation
| is a hyper regulated industry and the regulators flipped out
| when the asset ratio dropped below 95% or something like that,
| and as such, there will be inevitable expenses of a total
| shutdown, so figure everyone below $250K gets 100% back via
| insurance and everyone else gets $250K plus whatever was above
| $250K paid out at probably around eighty five percent when its
| all said and done (this is a guess although Moody's usually
| isn't all that wrong).
|
| Historically when smaller banks collapsed (my hometown bank for
| example back in '08) the regulators semi-forcibly merge the
| small bank into a large bank and there's zero loss, you're just
| magically now a customer of some out of town megabank. The big
| bank eats the loss in a wink-and-nod agreement where the big
| bank gets some future favorable regulatory treatment in
| exchange, semi-informally. The problem with SVB is it is, or
| was, huge. So finding a huger bank to merge with will be tricky
| to impossible. Which was kind of the point of regulation
| intended to keep competition higher by making lots of small
| banks instead of few large ones.
|
| The worst case outcome according to the last I saw from Moodys
| was big depositors will take maybe a fifteen percent haircut
| over $250K. The propaganda claims, of course, that all the
| money is gone and its 1933 again on Monday morning and the
| usual workers of the world unite stuff. But its not really THAT
| bad.
|
| Idle speculation I've seen in chats that the solution to SVB
| being way too f-ing huge to merge with anyone is a forcible
| separation followed by a forcible multi-merge. So each 1/4 of
| you will be new customers with 100% rate of return of JP, BoA,
| Citi, and WF respectively. (off the top of my head those are
| the four largest banks by assets, I could be wrong) This is
| just internet chat nonsense I wouldn't plan on it. Although it
| is an innovative solution to having a "too big to fail" bank
| failure.
| elevenoh wrote:
| [dead]
| gnulinux wrote:
| > Appropriate them, and leave small and mid businesses hanged
| to dry?
|
| Yes this is exactly what I support should happen. The remaining
| assets can of course be used towards depositors (even beyond
| $250k FDIC insure). But beyond that, tough luck. In our
| American systems thousands, millions of people and small
| businesses fail and the answer is "tough luck". Their failure
| is too small for anyone to care. But when big banks fail
| government helps them, which is how this is seen as. If you
| have more than $250k in a bank account sitting somewhere,
| you're objective not destitute and you objectively do not need
| tax money to help you out any further. So, yes "tough luck".
|
| This is not depositors fault, but it's also not tax payers
| fault. A bailout is a bailout. If depositors are bailed out, it
| is still a bailout.
| mattkrause wrote:
| Are people seriously arguing for $250k and not a penny more,
| regardless?
|
| I thought the argument some were making is that depositors
| should be guaranteed up to $250k and then get a proportionate
| share of whatever's left (which is not zero!)
| mstachowiak wrote:
| Reminds me of Charlie Munger's belief that the world is driven
| by envy, not greed.
| https://www.cnbc.com/2022/12/10/billionaire-charlie-munger-w...
| lazyeye wrote:
| Think of in terms of the same sneering contempt we've seen from
| Silicon Valley towards middle America. Except the idea that
| Silicon Valley taxpayers should contribute to bailing out
| anyone else would have been seen as laughable, middle America
| hasn't been earning multiples of Silicon Valley, and middle
| America hasn't been censoring everybody else, or monetising
| privacy abuse/destruction of youth mental health on a scale
| never before seen in human history.
| Apocryphon wrote:
| "Learn to weld", is a refrain I've heard.
| braingenious wrote:
| >Depositors shouldn't get anything beyond the insured $250,000
|
| My understanding of what I've seen people mention is that
| depositors shouldn't get more than the insured 250k _from the
| FDIC insurance fund_ , not that bank assets shouldn't be used
| to make depositors whole.
|
| This sentiment doesn't come out of nowhere. There have been a
| few panicked and very angry VCs on social media effectively
| calling for an immediate and retroactive increase in the limit
| for FDIC-insured funds.
|
| Essentially there are some folks that want the government to
| step in to make depositors whole _will leaving bank assets to
| be divvied up to make investors whole._
|
| Some folks see this crisis and immediately jump to "how can I
| take maximum personal advantage?" It is those people that are
| creating confusion and pushback wrt the FDIC's involvement
| here.
| norwalkbear wrote:
| It will hurt silicon valley extremely hard. It already is,
| paychecks won't be coming, trust is gone. Silicon valley was
| seen as brilliant but now is a joke.
|
| Ironically most small to mid non tech businesses will be just
| fine.
| joe_the_user wrote:
| The financial illiteracy is the most disturbing thing here.
|
| Commentator can only rail against "the tech world" in this
| instance if they've failed to grasp that supporting large
| depositor here this isn't a tech world issue but a financial
| system issue. And that goes with a generally decline in how
| knowledgeable the average HN commentator is.
|
| At this point, large bank deposits are implicitly guaranteed
| and if one pulls that away, the world's financial system would
| likely fall apart. You can argue this system is terrible and
| talk about how to change but no one who knows the impact of
| this stuff want "1929 on steroids" and neither is anyone with
| power going to implement it.
| ttsgeysygd wrote:
| FDIC will unfreeze a non trivial amount of depositors funds by
| Wed or Thursday. They sold a lot of assets Friday. I'm
| personally not predicting huge job losses. There are lots of
| war chest sized balances in SVB that it doesn't matter if they
| take longer to get made whole. So if they effectively unfreeze
| say two million per account or 45% whichever is larger on
| Wed/Thur and then balance in a couple of months I think Job
| losses will be minimal.
| dragonwriter wrote:
| > "This is a bailout". It would be if shareholders were to get
| their money back
|
| It would be a bailout _of SVB shareholders_ if shareholders got
| their money back. But its a bailout of _someone_ in any case.
| [deleted]
| lotsofpulp wrote:
| > "Depositors shouldn't get anything beyond the insured
| $250,000". Then what do we do with the billions in remaining
| assets? Appropriate them, and leave small and mid businesses
| hanged to dry?
|
| I think the common sentiment is depositors should not get any
| more than whatever the remaining assets are worth.
|
| And I think the prominent people asking the government to
| bailout depositors are worried about only getting 75% of their
| deposits back, because the remaining assets might not cover all
| of the deposits, or it might take a while to recover the
| deposits.
|
| And that is what people are against.
| nightpool wrote:
| Yes, but "worth" is a complicated concept here. What's
| probably going to happen is that a big bank like JPMorgan is
| going to buy the remaining assets at 100% book value, and the
| depositors are going to be made whole out of that. That's not
| their current market value if sold at fire-sale prices, but
| banks have the time horizons to hold those assets to maturity
| and not worry so much about their market value. The stability
| of the US banking infrastructure is worth more to JPMorgan
| then haggling over a few billion dollars of lower rates bonds
| lotsofpulp wrote:
| > The stability of the US banking infrastructure is worth
| more to JPMorgan then haggling over a few billion dollars
| of lower rates bonds
|
| I wonder why the leaders at JPM did have not announced this
| yet, to say they are paying 100% book value.
|
| Seems like it would let everyone go back to enjoying their
| weekend, including Yellen and numerous other prominent
| people.
| thephyber wrote:
| Your attitude is flippant and ignores massive risk. Was
| it meant to be sarcastic?
|
| Due diligence. Risk. Opportunity costs.
|
| JP Morgan is probably re-evaluating their own assets
| right now with the assumption that what happened to SVB
| might happen to them also in a few weeks/months.
| JumpCrisscross wrote:
| > _not their current market value if sold at fire-sale
| prices_
|
| Fire sale means the selling of the assets pushes their
| value down. This is not that. It's insolvency; the assets
| were and are worth less than their book value.
|
| > _stability of the US banking infrastructure_
|
| Speaking anecdotally, New York is surprised and the Bay
| Area scared. This is a local problem. Not a systemic one.
| mlindner wrote:
| > Fire sale means the selling of the assets pushes their
| value down. This is not that. It's insolvency; the assets
| were and are worth less than their book value.
|
| As has been repeated many times, the bank was never and
| is not insolvent.
| MrMan wrote:
| the bank was closed by the FDIC due to insolvency
| JumpCrisscross wrote:
| > _the bank was never and is not insolvent_
|
| Yes, it was, as declared by its regulators. Its balance
| sheet balanced. But its liabilities were worth more than
| its assets. If it weren't insolvent, SVB could have
| borrowed at the Fed's discount window. It couldn't.
| ptero wrote:
| I do not think there is reasonable pushback on this. If a
| private company like JPM wants to do it, great!
|
| The issue is with using government money to repay
| depositors beyond what they would otherwise get from the
| FDIC floor plus liquidation of SVB assets. I am not saying
| it should not be done (it probably should to avoid
| forcefully consolidating all banking at the big three), but
| that it should be a subject of hard questions and a serious
| discussion. My 2c.
| thephyber wrote:
| You're missing the point. There's no need to liquidate
| the bank or do a fire sale.
|
| Assuming there was no malfeasance and the assets are as
| described on the books, the bank just needs liquidity so
| it doesn't have to fire sale.
|
| Also worth pointing out that every bank likely has the
| same problem trying to move treasuries from 1-5 years ago
| right now. The financial big heads should be trying to
| figure out how to make such a "safe investment" actually
| safe again.
| runeks wrote:
| I highly doubt that JP Morgan will buy SVB's assets at
| above-market prices.
| baq wrote:
| They might if they're buying more than the assets (i.e.
| credibility of the whole sector), but the hole is
| probably too big for even JPM to take it alone. Maybe the
| top 4 split it between themselves?
| hn_throwaway_99 wrote:
| It's definitely possible. assets = liabilities + equity.
| Well, SVB equity has already been wiped out to zero, so
| that's money JP Morgan doesn't need to come up with to
| make the value of the assets (i.e their securities) equal
| their liabilities (their deposits). It could
| theoretically be worth it to JPM to buy SVB to (a) in one
| fell swoop take over the biggest startup-focused
| financial institution, and (b) calm systemic risk fears.
| nerdponx wrote:
| But why? What purpose does that serve? It's hardly even
| inflationary, the value was basically destroyed, so the Fed
| conjuring replacement money doesn't seem like such a bad
| thing. Shareholders will still be taking a major loss, and
| they are the ones who ought to be held responsible, so it
| makes sense. You can't fault depositors for not doing
| thorough diligence on a 40-year-old bank with a good
| reputation and it doesn't make sense to punish their
| employees for it, especially in a cooling job market with
| uncomfortably high inflation.
| lotsofpulp wrote:
| Suppose an immigrant is starting a restaurant, and has to
| pay up front to some suppliers that have been in business
| for 40 years for kitchen equipment. And the supplier goes
| out of business, and the money is gone. And the immigrant
| has no more time or money to hire a lawyer to submit a
| claim to recover it.
|
| Is there a federal bailout waiting for the immigrant? Or
| the immigrant's employees who might also be family members?
|
| > What purpose does that serve?
|
| The purpose is to show we are playing by the same rules.
| And that somehow, it is not always the poorer, the more
| uneducated, the ones born to the wrong parents who do not
| get bailed out.
| nerdponx wrote:
| > Is there a federal bailout waiting for the immigrant?
| Or the immigrant's employees who might also be family
| members?
|
| Why shouldn't there be? As long as they weren't utterly
| reckless up to some reasonable standard, IMO they should
| be. This has the same empty tenor as arguments against
| student debt relief on whatabout/fairness grounds.
|
| > The purpose is to show we are playing by the same
| rules. And that somehow, it is not always the poorer, the
| more uneducated, the ones born to the wrong parents who
| do not get bailed out.
|
| Two wrongs don't make a right. I get that you're bitter.
| So am I. Doesn't mean we need to fuck over a bunch of
| people who are not at all at fault and possibly trigger
| systemic economic problems, contagion, recession, etc.
| confidantlake wrote:
| But where does it stop? When I lent my friend $100
| dollars when we were 16 and he never paid me back, should
| I have been bailed out too? If not, why not? If the
| government bails out people/businesses every time
| something goes wrong there will be a lot more risky
| investments.
| [deleted]
| s1artibartfast wrote:
| Someone always gets fucked.
|
| It is either startup or the taxpayer, restaurant owner or
| the taxpayer, student debt holder or the taxpayer.
|
| The taxpayer minding their own business gets tired of
| always being on the short end.
| nerdponx wrote:
| You could say the same about _any_ government-provided
| taxpayer-funded service that benefits people in times of
| need. This is literally what our taxes are supposed to be
| for.
| s1artibartfast wrote:
| >You could say the same about any government-provided
| taxpayer-funded service that benefits people in times of
| need.
|
| But certainly not every need should be the taxpayers
| responsibility. Government safety nets should have
| positive return on investment for individual citizens.
| Increasing the cost to the individual without increasing
| the benefit threatens to delegitimize the entire
| endeavor.
|
| Why would I ever want to expand the scope to include
| restaurants, student debt, or business risk if that scope
| has no benefit to me?
|
| If I don't have student debt, a restaurant, or a
| corporate account, it just becomes crony capitalism and
| extortion from my perspective.
|
| A lot of people feel that the purpose of taxes is not to
| socialize the cost of people's mistakes, but rather
| provide services where all sides see net benefit.
| nerdponx wrote:
| Preventing thousands of job losses and helping small
| businesses stay afloat during crises that they should not
| reasonably have to expect _does_ have a positive return
| on investment for taxpayers.
|
| It is absolutely valid to interpret this incident as a
| regulatory failure and the failure of our legal system to
| enact sufficient penalties on those responsible, leading
| to some amount of moral hazard, which means that problems
| like this might arise again in the future.
|
| But you are _also_ arguing that, in general, spending
| taxpayer money to help businesses and individuals ride
| out random crises and catastrophes is not a good use of
| that taxpayer money. I and I think most sound-minded
| economists would disagree with you, on a purely
| mechanical cost-benefit basis.
| thephyber wrote:
| What if the restaurant employs 5 people? 500 people?
| 50,000? 5,000,000 people?
|
| Sometimes it actually pays to evaluate breaking a policy
| if the harm of following it is larger than the harm of
| coming up with a different decision. How much does the US
| Treasury expect to lose in tax revenue if SVB's customers
| are stuck with frozen accounts or the assets are sold at
| too steep of a discount just to get them resolved
| quickly?
|
| The use of bailout here seems to be using a tainted term
| to spread taint to the victim. The restauranteur is a
| depositor. His assets can be very nearly made while so
| long as there is no fire sale on the bank assets. The
| "bailout" is really just providing sufficient liquidity
| to keep the bank working. It's only insolvent so long as
| it has short term liquidity issues.
| cma wrote:
| The bank became a crypto onramp/offramp and also counted a
| bunch of web3 stuff to not draw down their deposits.
|
| That we can't let crypto-ponzi involved stuff infect the
| real system and get bailouts is a general sentiment over
| this that makes sense. $250,000 per account is what we are
| mandated to compensate Circle legally and to go beyond is
| people who stayed out of crypto subsidizing the crypto
| ponzi scheme ecosystem.
|
| USDC can probably maintain $1 from the crazy amount of
| slippage from people losing their keys anyway.
| lolinder wrote:
| > You can't fault depositors for not doing thorough
| diligence on a 40-year-old bank with a good reputation
|
| The 40-year-old bank with a good reputation was offering
| deals that were too good to be true, like 4.5% APR on a
| savings account (other high yield savings accounts are at
| 3.5% right now, and those are online banks that achieve
| those rates by having minimal overhead). Naive startup
| founders aside, the VCs should have known better than to
| think interest rates like that were coming from a bank that
| was playing it safe, and for them to now be asking for the
| taxpayer to make up the difference between the bank's
| assets and their startups' deposits is weird.
|
| They knew they were advising their startups to put all of
| their money into a high _reward_ system, but we 're
| supposed to believe that they didn't realize that was also
| high _risk_?
| nerdponx wrote:
| So blame the VCs, but I don't see why of startup founders
| and their employees should suffer for doing what their
| investors told them to do.
| lolinder wrote:
| The VCs put money into a startup and encouraged them to
| engage in risky banking practices. If these startups
| succeed the VCs get a payout, if they fail they get
| nothing.
|
| A taxpayer-funded bailout of the depositors is socialized
| risk, privatized reward. Why should the taxpayers stand
| for that?
| nerdponx wrote:
| Again, two wrongs don't make a right.
|
| This is like arguing that we shouldn't pay for housing
| for the homeless because rich property developers are
| partly to blame for the housing crises in many cities.
| Clubber wrote:
| >"Depositors shouldn't get anything beyond the insured
| $250,000". Then what do we do with the billions in remaining
| assets? Appropriate them, and leave small and mid businesses
| hanged to dry?
|
| Did the depositors (we're talking companies here) not know that
| the FDIC limit was $250K? If they did, why didn't they hedge
| accordingly by opening accounts at other banks? Was this not an
| unreasonable expectation of a company to do?
|
| If I did the same thing, would I expect the government to cover
| the difference between the asset sale value and the insured
| amount?
| ScoobleDoodle wrote:
| Clarifying the answers to the two misconceptions: 1)
| "Depositors shouldn't get anything beyond the insured $250,000"
| and 2) "This is a bailout"
|
| FDIC pays out the $250,000 insurance to SVB depositor accounts.
| FDIC recoups those costs from the SVB assets, and then pays out
| depositor account holders as much % as possible from
| liquidating the remaining SVB assets. It sounds like the latter
| will be disbursed in several increments as the assets are
| liquidated. All of that assuming no buyer by Monday.
|
| If there is anything left after depositors are made while, then
| that might go to shareholders.
| duxup wrote:
| It also heads off the big risk, additional bank runs.
|
| If depositors see strong signs of support they won't run. They
| may very well be saving other banks without even having to deal
| with them with this move. No bank can survive a bank run beyond
| a certain point.
| 1vuio0pswjnm7 wrote:
| "I get the schaudenfraude, but this will not hurt big tech and
| VCs and much as tens of thousands of small businesses, and the
| people employed at them."
|
| It's good for those "businesses" if VC and Big Tech are
| unharmed because were it not for VC investment and Big Tech
| acquisitions, these "companies" would have no money to pay the
| people who "work" at them.
|
| Legitimate businesses that can pay employees from revenues and
| generate profits are generally not SVB's customers. They can
| use normal banks.
|
| Arguably a "job" that depends on interest rates being "zero"
| and investors writing checks cover payroll is not something
| anyone should be relying on longterm.
|
| "Generic screeching against the tech world" is a red herring.
| Perhaps it is easy for "tech" companies to dish out hype but
| difficult for them to accept any negative commentary. The
| question that must be considered is whether the "tech"
| company's so-called "business model" really is one. Arguably
| these "companies" never had a successful business model and
| never found one, if they remain reliant on VC, SVB and Big
| Tech. Intermediaries, surveillance, data collection,
| advertising services, all purely parasitic activity. If this is
| not something the world really needs _and is willing to pay
| for_ , entities like SVB and their customers will burn out or
| fade away.
|
| Big Tech fans commenting on HN have used the phrase, "The
| market has spoken" in the past to foreclose any debate on the
| merits of the so-called "tech" industry. Well, here the market
| is speaking.
| Edmond wrote:
| >The government will use the bank assets to make customers, not
| owners, whole.
|
| The reason SVB is in receivership is because they don't
| actually have the ability to make all their depositors whole.
| Any scenario where uninsured depositors end up with all their
| money back is likely to be a bailout.
| avianlyric wrote:
| > The reason SVB is in receivership is because they don't
| actually have the ability to make all their depositors whole.
|
| No, SVB is in receivership because they can make their
| depositors whole _right now_. They have most of the assets,
| it's just that liquidating them immediately would result in
| losses far greater than SVB can afford, but that's what a
| bank run demands.
|
| The feds can take over, make depositors whole now by funding
| deposits from federal funds, while taking on SVBs assets and
| liquidating them on a timeline that maximises the value,
| ideally a value that covers all depositor funds.
|
| In effect the feds provide a loan to SVB depositors, backed
| by SVB assets. Which is far better than either forcing the
| FDIC to actually payout the insured amount, because
| depositors get their funds, and the fed avoid having to
| handover cash to SVB to keep them afloat. Meanwhile
| shareholders take a bath, because their shareholding value
| drops to zero.
| metalspot wrote:
| bull. shit. if their assets actually could be liquidated
| for full cover over time than any other bank with plenty of
| reserves would be happy to buy them. that didn't happen, so
| we know for sure their assets are not worth what they claim
| on any timeline.
| jliptzin wrote:
| No one is going to touch a bank while people are
| literally lining up to withdraw all their money no matter
| what their asset book looks like
| metalspot wrote:
| that is a lie. the amount of money involved here is not
| that much. it would be very easy for a larger bank to
| swallow if they believed in the long term value of the
| assets.
|
| the real thing is that SVB had an iconic brand, tons of
| business relationships, and very skilled and well
| connected employees, and yet none of that intangible
| value offset the hole in their balance sheet. that is the
| real indicator of just how bad it actually is.
| jliptzin wrote:
| Not in today's environment. My Citi savings account pays
| 0.12% interest despite fed funds being at ~5%. Big banks
| don't need more deposits, they can't even make enough on
| their existing deposits. They especially don't need to
| get involved in another bank during a bank run.
| metalspot wrote:
| that's the thing. SVB has a loan portfolio paying much
| higher interest rates. but if that loan portfolio is to a
| bunch of companies that are going to go bankrupt, then it
| isn't worth anywhere close to what it is on the books at.
|
| the game here is very simple: SVB loans money to cash
| burning startups and they keep that money in SVB
| accounts, so it looks like they have cash, and it looks
| like SVB has deposits, but all of that is created out of
| thin air by SVB giving loans to companies that couldn't
| get them from a real bank. If those companies actually
| take the money SVB loaned them out of their SVB account,
| then the scam collapses.
|
| that is what happened. everybody knows it.
| jliptzin wrote:
| Ok, maybe that's true, maybe it's not? We don't know yet.
| Is that worth the collapse of the regional banking system
| in this country even if that is true? I'd prefer to have
| choices with my money, not just Citibank, Chase, and
| Wells Fargo.
| avianlyric wrote:
| The last time a bank bought another failing bank, they
| also ended up buying a whole load of extra problems that
| made the total deal very costly.
|
| No bank is going to want to buy SVB unless there's a
| clear and substantial profit to be made (which their
| obviously isn't), or there's some guarantee that the
| purchasing bank doesn't get held liable for any of SVBs
| historical misbehaviour.
|
| Right now, I suspect that every bank capable of
| purchasing SVB is taking a "wait and see" approach.
| There's no risk to them if SVB and their depositors get
| fucked. And there is substantial upside to waiting and
| seeing if the FDIC is going to try and setup a sweetheart
| deal for another bank to takeover. So why would any bank
| move early?
| baq wrote:
| By now all the liquid assets are already sold. The question
| is what about the loan book. The most interesting
| development would be FDIC making offers to the top 5 banks
| which they can't refuse, which is what I'm personally
| hoping for.
| Vespasian wrote:
| Can't the federal government simply take the long term
| t-bills directly and "close" them now at theoretical face
| value + interest.
| baq wrote:
| I think you've reinvented callable bonds.
|
| https://www.sapling.com/7796395/treasury-bonds-callable
| worldofmatthew wrote:
| That would effectively be no different than a bailout.
| janlin1999 wrote:
| That would essentially be the government giving money
| away, since those bills are worth less than face value if
| sold now.
|
| If that is done, you can imagine many others wanting
| access to the same deal.
| alpineidyll3 wrote:
| In many cases the loans are to depositors (and the debt
| is questionable). The just thing would be make depositors
| without debt with svb whole first, ofc there is no system
| of fairness in finance.
| adharmad wrote:
| Or they can find a buyer for SVB's assets - preferably a
| bank - which do all this and in addition provide business
| banking services as well.
| avianlyric wrote:
| Ideally they would, which is what happens to some banks
| in 2008. Unfortunately the banks that stepped in and
| bought failing banks got very badly punished, because
| they also inherited a whole bunch of liabilities far
| beyond the failing bank's deposits, liabilities the
| purchasing bank didn't expect and ultimately cost them
| substantial amounts of money.
|
| If FDIC wanted another bank to buy SVB and make
| depositors whole, they would almost certainly also need
| to guarantee some sort of firewall against any
| liabilities beyond the deposits. Presumably the
| purchasing bank would want some ability to pick and
| choose exactly what bits of SVB it buys, and which
| liabilities. Leaving the remainder with either the feds,
| or some shelled out SVB entity. But who's knows if that's
| a path FDIC want to go down.
| senttoschool wrote:
| In this scenario, the government will likely lose money
| because the existing assets will not cover the loans made
| out to depositors.
|
| For example, if the government buys the 10 year bonds
| yielding 1-2%, they will lose money based purely on future
| value.
| Edmond wrote:
| A fundamental component of finance valuations and rules is
| time.
|
| Saying that the fed should stretch out the timeline of
| asset sales so as to ensure they mature into their
| valuations doesn't align with how things work. Time value
| of money is a thing, if we consider even moderate inflation
| for instance, the cash you can get today is worth less in
| the future. In order words if SVB assets are worth $100
| today, it makes no sense for me to hand them $100 in cash
| today while I wait a decade for their bonds to mature, just
| so I can sell them for $100 again.
|
| That is before we get to the fact that the fed is not in
| the business of managing investments for random failed
| businesses.
|
| If some knight in shinning armor takes a look at SVB assets
| and deem them worth some future value that would justify
| the current need for cash, they'll buy the bank. So far it
| appears no such knight has emerged.
| madamelic wrote:
| > it makes no sense for me to hand them $100 in cash
| today while I wait a decade for their bonds to mature,
| just so I can sell them for $100 again.
|
| I know the Fed and Treasury are different entities but
| holding a bunch of bonds to essentially themselves is the
| best case scenario. They would hold both ends of the
| transaction: the money from the bonds and the bonds
| themselves (obviously ignoring the fact the liquid money
| is likely 'at work' somewhere else).
|
| The risk at that point to the Fed is limited to only the
| US financial system failing entirely. 'They' can afford
| to hold the bonds even in perpetuity because they have no
| real responsibilities to anyone beyond providing
| stability.
|
| I am not an economist but the risk of either asking for
| the cash from the Treasury or otherwise doing 'money-
| magic' to transform the bonds into liquid cash should be
| basically zero. They would just be fronting themselves
| money at a 0% interest rate, no one else would be exposed
| to that 'loan'.
|
| Someone else smarter in economics may have to step into
| explain why this is wrong or bad.
| bradleyjg wrote:
| This is not a typical liquidity squeeze. The scenario you
| are talking about is where liquidating some assets all at
| once would crash the market and so to capture the value a
| sale needs to be made over time.
|
| The treasury and agency mbs markets are plenty deep enough
| to handle this liquidation. The issue is that the value of
| the holdings have dropped. That's a solvency issue.
| avianlyric wrote:
| I'm boldly assuming that interest rates will change in
| the future. There's no denying that SVB have fucked up,
| but equally it's possible they would have survived if a
| bank run hadn't occurred, and they had sufficient time to
| unwind their bonds, and raise needed capital to cover
| their inevitable losses.
|
| Or maybe they would have managed to limp on long enough
| for interest rates to drop just low enough for their
| bonds to recover enough value to be sold without bank
| ending losses.
|
| But who knows. There was a bank run, facilitated by VCs,
| which ironically, is now going to really hurt the very
| VCs that fanned the flames. Now we get to see how SVB
| gets unwound, who gets fucked, and who ends up picking up
| the tab.
| machina_ex_deus wrote:
| Let's stop pretending this bank was an arbitrary choice. This
| bank was corrupt, it took overblown risks by design for years
| including even lobbying for lax regulation.
|
| The VCs whose money those startups are built upon, have
| connections to this bank. This entire back acted like some VC
| venture, with explicit design of taking the risk of zero
| return.
|
| 0 dollars should be given to depositors. Absolutely zero. These
| griefters learned how to use the common people as meat shields.
| It's the CFO of Lehman brothers. Let the VCs who supported this
| lose their investments and be forced to raise money now. If
| those businesses are worth something, investors will buy them.
| Let the VCs who gave bad advice be wiped clean from the
| investment. Their choices led to this.
| koolba wrote:
| > Then what do we do with the billions in remaining assets?
| Appropriate them, and leave small and mid businesses hanged to
| dry?
|
| Easy, pay out $250K per account, then distribute the rest pro
| rata based upon closing balance from when the fed's took over.
| If they have to wait because assets need to be liquidated then
| sucks to be them. I'm sure they can get their money faster if
| they agree to a haircut.
|
| > "This is a bailout". It would be if shareholders were to get
| their money back, which doesn't seem likely. The government
| will use the bank assets to make customers, not owners, whole.
|
| Money to depositors for amounts greater than $250K is a bail
| out. They have no right to that money from the Feds.
|
| > Generic screeching against the tech world. I get the
| schaudenfreude, but this will not hurt big tech and VCs as much
| as tens of thousands of small businesses, and the people
| employed at them. Some billionaires will be upset at some
| relatively insignificant losses, while hundreds of thousands
| may lose their jobs.
|
| On the flip side, there's nothing special about many of the
| customers being small businesses, or startups, or big
| businesses, or really anything else. There's established rules
| for FDIC insurance and that's what we should be following.
| nonethewiser wrote:
| > Money to depositors for amounts greater than $250K is a
| bail out. They have no right to that money from the Feds.
|
| I'm surprised to hear this perspective.
|
| I think most people understand a bailout as cash injection.
| Not that you get more than what the government insures.
|
| If it were the latter then bailouts happen all the time
| without bank failures or FDIC takeovers (all transfer >
| 250k).
| koolba wrote:
| The $250K is the FDIC covered limit. Amounts greater than
| that are not insured by the Feds. If the bank fails, the
| Feds ensure that depositors get at least $250K per account.
|
| If SVB is insolvent than customer deposits are not worth
| their full value. The phrase "making all depositors whole"
| would be the Feds covering the difference. Anything beyond
| the $250K per account would be money that they are not
| entitled to per US banking regulation.
|
| > If it were the latter then bailouts happen all the time
| without bank failures or FDIC takeovers (all transfer >
| 250k).
|
| This has nothing to with bank transfers. It's about deposit
| insurance.
| gammarator wrote:
| > Anything beyond the $250K per account would be money
| that they are not entitled to per US banking regulation.
|
| This isn't correct. SVB has assets which are still worth
| something, even if they are less than their total
| liabilities. Unsecured depositors are first in line for
| that money, and the $250k fdic insurance limit has
| nothing to do with it.
| belter wrote:
| As others have pointed out, those assets are not liquid.
| And selling many of them on short notice, will cause all
| other kinds of problems. Takes time and you wont get the
| money equal to their current valuation.
| madamelic wrote:
| > Anything beyond the $250K per account would be money
| that they are not entitled to per US banking regulation.
|
| It's my understanding that FDIC considers $250k the
| minimum they'll cover and they can (and have) cover(ed)
| higher through raised premiums to other banks.
| madamelic wrote:
| It's also a bad idea imo.
|
| This situation isn't a handful of big individuals losing
| some of their money and the majority being insured under
| FDIC, the bank's customers is mostly small and medium
| businesses which have lost all of their money.
|
| I hate bailouts and think we should allow more failure but
| it would be a horrendously bad idea to let a bunch of
| businesses fail under no fault of their own.
|
| They'd likely be looking at multiple tens of thousands of
| unemployed individuals near instantaneously along with
| accelerated layoffs at unaffected businesses as clients
| disappear overnight / businesses get spooked.
| jliptzin wrote:
| It is completely insane to allow innocent depositors to lose
| their money especially when the government clearly would have
| no problem coming up with the funds to backstop depositors
| since this is an isolated incident. This bank being located
| in a tech hotspot is incidental and I am sure some non-
| techies are swept up in this as well. Imagine a 70 year old
| woman who just lost her husband and sold her house to
| downsize to an apartment. She has $1 million in her SVB
| account and plans to live off the interest in her retirement.
| Should this 70 year old widow take a $750k haircut because
| she hasn't spent the last few years brushing up on SVB 10-k
| filings and calling up SVB's board of directors to ask them
| how they plan to manage interest rate risk?
|
| FDIC limit should be way higher anyway (when was the last
| time it was raised?) but if we allow depositors to lose money
| it will quickly cause a stampede to the handful of huge banks
| and drive smaller regional banks out of business. That's why
| other bank stocks are also plummeting right now. Is that what
| you want?
|
| If an enormous earthquake strikes one region causing billions
| of dollars of damage but you live on the other side of the
| country do you complain about the federal government spending
| your tax dollars to help those people rebuild?
|
| For the record I believe SVB shareholders and debt holders
| will get wiped out, as they should.
| Gwypaas wrote:
| > Imagine a 70 year old woman who just lost her husband and
| sold her house to downsize to an apartment. She has $1
| million in her SVB account and plans to live off the
| interest in her retirement. Should this 70 year old widow
| take a $750k haircut because she hasn't spent the last few
| years brushing up on SVB 10-k filings and calling up SVB's
| board of directors to ask them how they plan to manage
| interest rate risk?
|
| That is simply awful financial management. You can be
| extremely unlucky and have it happen the day you get your
| deposit, but that seems like an annoying edge case which is
| unlikely to happen in the real world.
|
| In my jurisdiction across the pond, investment funds are
| the easiest method to manage the account insurance risk.
| They need to be legally and economically separated from the
| broker you are managing them through, so if whoever you are
| brokering with goes bankrupt, you still own them. You can
| access them with a new broker after a bit of hassle.
|
| If you want low-risk, pick funds investing in government-
| backed bonds. High-risk choose stock market-based index
| funds.
|
| Now the only thing counting towards the $250K limit is
| whatever you have in the brokerage account between
| transfers. Easy peasy, your risk of a bank collapse is zero
| and you have the money available within a couple of bank
| days notice.
| Denvercoder9 wrote:
| > FDIC limit should be way higher anyway (when was the last
| time it was raised?)
|
| In 2008 it was raised from $100K to $250K. The increase in
| the FDIC limit has actually outpaced inflation since its
| establishment in 1934, when it was $2500, which is $56K
| inflation-adjusted today.
| koolba wrote:
| > Imagine a 70 year old woman who just lost her husband and
| sold her house to downsize to an apartment. She has $1
| million in her SVB account and plans to live off the
| interest in her retirement. Should this 70 year old widow
| take a $750k haircut because she hasn't spent the last few
| years brushing up on SBV 10-k filings and calling up SBV's
| board of directors to ask them how they plan to manage
| interest rate risk?
|
| Making a sob story about a 70 year old granny doesn't
| change the facts.
|
| And she wouldn't take a $750K haircut. She'd get $250K
| guaranteed and her share of the remainder which is not
| going to be zero. Probably much closer to 80+% of the
| balance above $250K.
|
| > If an enormous earthquake strikes one region causing
| billions of dollars of damage but you live on the other
| side of the country do you complain about the federal
| government spending your tax dollars to help those people
| rebuild?
|
| If it's going to be done with funds not allocated or
| aligned with FEMA then damn straight I'll complain. Society
| does not have infinite money. If they want to increase
| funding for something then we have a process for that.
| onenukecourse wrote:
| I don't think that's how the FDIC insurance works. I was
| under the impression that the 250k is _after_
| liquidation, the last resort. Anyway, SVB was really
| leveraged so I 'm not sure how much of their asset book
| value is recoverable.
| jliptzin wrote:
| So you're saying the government (taxpayer) will get back
| 80%+ of the funds it uses to backstop depositors. Isn't
| that a small price to pay to avoid a total collapse of
| the local and regional banking system?
| koolba wrote:
| > So you're saying the government (taxpayer) will get
| back 80%+ of the funds it uses to backstop depositors.
|
| The government should get 100% of the immediate cash it
| provides to cover the $250K per account. Hopefully with
| interest.
|
| > Isn't that a small price to pay to avoid a total
| collapse of the local and regional banking system?
|
| No that's the type of bankrupt logic (pun intended) that
| would create an even bigger financial crisis due to
| incentivizing bad risk taking by banks.
|
| And SVB paying out depositors $.80 on the dollar isn't
| going to collapse the banking system.
| jliptzin wrote:
| Here's some smaller regional bank stocks over the last
| few days:
|
| https://finance.yahoo.com/quote/PACW - Down 60%
| https://finance.yahoo.com/quote/FRC - Down 30%
| https://finance.yahoo.com/quote/SBN - Down 40%
|
| Meanwhile huge bank stocks are up or unchanged
|
| https://finance.yahoo.com/quote/JPM
| https://finance.yahoo.com/quote/WFC
|
| Did these banks all make the same stupid decision as SVB?
| Unlikely but maybe. More likely though is the risk that
| people get spooked over SVB customers losing their
| deposits (even just 20%) and decide to move their money
| away from smaller banks like SVB to huge banks like Citi,
| Wells Fargo, etc. Personally if there were a chance I'd
| lose just 10% of my balance I'd make the switch, it's the
| only rational thing to do if other depositors are taking
| a haircut elsewhere. It's not going to collapse the
| entire banking system, just the local/regional one, which
| you see is already starting to happen.
|
| I fail to see how burning most of grandma's life savings
| (and other innocent people who probably never experienced
| a bank run before) and allowing the collapse of regional
| banks is somehow better than backstopping depositors now
| and making much tighter banking regulation for smaller
| banks going forward to prevent this from happening again.
| Do we want the nation's banking infrastructure to consist
| only of 3 or 4 enormous banks or do we want the options
| that a lot of smaller local banks who are able to cater
| to the specific needs of their communities provides?
| [deleted]
| rullelito wrote:
| It's 250,000 per institution. Just don't hold more than
| that much in a non-system critical bank, spread it out. If
| you do that you're 100% safe.
| koolba wrote:
| Per account type, per person, per institution.
|
| So separate checking and savings are insured for $250K
| each.
| auntienomen wrote:
| NO! Checking and savings accounts are NOT separately
| insured! The FDIC is $250k per bank, per depositor and
| per ownership category. Ownership category = single
| account / joint account / trust account / mortgage escrow
| account/ (10 more obscure categories).
|
| As a regular person, you get $250k for your checking and
| savings together, and your spouse gets $250k for theirs,
| and then you get another $250k for jointly owned
| accounts.
| koolba wrote:
| Oh crap you're right. I was mixing up tenancy and type.
| graeme wrote:
| >the government clearly would have no problem coming up
| with the funds to backstop depositors since this is an
| isolated incident.
|
| If you start bailing out banks which take risks, then the
| incidents become less isolated
|
| Once you're handling millions of dollars you absolutely
| should be looking into counterparty risk when you deposit
| funds. Baffling that people are arguing business owners
| should do no due diligence on a bank or take no insurance.
|
| https://en.wikipedia.org/wiki/Moral_hazard
| tome wrote:
| > Imagine a 70 year old woman ...
|
| I think the idea is that millionaire grannies should be
| advised to split their cash across four accounts, or buy
| bonds, or some other sensible thing, rather than just
| keeping bank deposits.
| [deleted]
| senttoschool wrote:
| I think the depositors should get a bit of a haircut if
| selling the assets don't cover all deposits. For example, 5%.
| If it's more than 5%, then the government steps in and pay
| for the rest.
|
| 5% seems like the right balance between the two extremes.
|
| Companies and people should pay a small penalty.
|
| At the same time, we shouldn't rock the financial system
| further. We need to have confidence in the system.
|
| After this, the government should make new regulations to
| prevent this scenario from happening again.
|
| For those wishing to just follow existing rules exactly as
| is, bear in mind that a contagion will likely reach your
| personal finances.
| admissionsguy wrote:
| > 5% seems like the right balance between the two extremes.
|
| No it's not. If they get a single cent above the bank's
| remaining assets (after administrative costs of the FDIC
| action), I don't think I will be the only one losing any
| remaining trust in the system.
| drgath wrote:
| Seems likely it's all there.
|
| https://www.fdic.gov/news/press-
| releases/2023/pr23016.html
|
| > As of December 31, 2022, Silicon Valley Bank had
| approximately $209.0 billion in total assets and about
| $175.4 billion in total deposits. At the time of closing,
| the amount of deposits in excess of the insurance limits
| was undetermined. The amount of uninsured deposits will
| be determined once the FDIC obtains additional
| information from the bank and customers.
| metalspot wrote:
| "assets" are the dollar amounts of the loans you have
| issued. what those "assets" are actually worth is a
| completely different number.
| stephen_g wrote:
| Yes, issue for the depositors is how long it might take.
| Digging through the closed banks history at the FDIC is
| fascinating - https://closedbanks.fdic.gov/dividends/
|
| Sometimes up to ~75% of the funds is paid out within
| weeks of collapse, but for some banks it's only 10 or so
| percent. Most of the time it seems to end up with over
| 90% being paid out (sometimes it's 100%), but the
| payments can come over ten or more years!
|
| Often seems to be one within weeks, one in the next month
| or two, and then the payments seem to start coming every
| three or so years.
| senttoschool wrote:
| Well, if depositors can wait 10 years, they will
| absolutely get 100% back. The assets are worth more than
| the deposits right now if they aren't sold in a fire
| sale.
|
| The problem now is that startups need the money quicker
| than 10 years. But to sell everything now means a giant
| haircut.
| senttoschool wrote:
| That's fine if you don't.
|
| I don't have any money in SVB nor anyone I know.
|
| However, I have a vested interest to lower the risk of a
| contagion.
|
| I think the ROI to the US economy should make sense for a
| bailout.
|
| It sucks. And I'm once again paying with my tax dollars.
| But a deposit bailout, while shaving a few percentage off
| seems to make sense.
| NotACop182 wrote:
| Government steps in and pays the rest? No, change the laws
| if this is the case. Why special treatment to help out but
| in any other scenario where tragic financial mishaps of
| regular folks you are given a pat on the shoulder and "good
| luck". Pretty sure they have a write off tax wise for any
| additional loses.
| senttoschool wrote:
| A bailout is within the law if that's what they want to
| do.
|
| It's just a matter of whether you think the ROI is worth
| it.
| [deleted]
| auntienomen wrote:
| 5% is still going to cause bank runs elsewhere. No one is
| going to stay at any bank where they might take a 5% hit.
|
| Make the depositors whole and let things calm down. Then,
| at leisure, on a case by case basis, claw back a few
| percent to cover the moral hazard of people getting better
| loan terms or whatever.
| drgath wrote:
| Have we yet deviated from FDIC rules? I don't think so, even
| with what Yellen says. My limited understanding of the
| situation is that the assets to cover everything is there,
| they're just tied up in long-term treasuries.
|
| From the FDIC's site:
|
| > As of December 31, 2022, Silicon Valley Bank had
| approximately $209.0 billion in total assets and about $175.4
| billion in total deposits.
|
| For simplicities sake, let's just assume 100% of the assets
| are actually there, but it'll just take varying years for
| everything to mature. So, what's next? FDIC finds a buyer for
| the assets, perhaps a private bank or a a pseudo-government
| body who has the ability to wait till maturity, and in the
| meantime, everyone gets all their deposits. That's not a
| "bailout", and is following the rules.
| tamcap wrote:
| Magically using billions of federal money to hold assets to
| maturity is a bailout. If hypothetical JPMorgan is willing
| to pay for the (ie) bonds $20B, but they "support" $25B of
| deposits... that $5B is a bailout. Even if in 10 years
| those bonds would be worth $25B.
| Denvercoder9 wrote:
| > So, what's next? FDIC finds a buyer for the assets,
| perhaps a private bank or a a pseudo-government body who
| has the ability to wait till maturity, and in the meantime,
| everyone gets all their deposits.
|
| Yes, that's happens in the ideal case. However, due to the
| rise in interest rates, the market value of SVB's assets is
| likely lower than $175B at the moment; so it might prove
| challenging for FDIC to find a buyer for these assets at
| the required price to give everyone their deposits back.
| Even well-capitalized entities that have the capital to
| refund depositors now and the ability to wait till maturity
| will not pay the face value for these bonds, as they can
| get a better return by investing that money somewhere else
| (such as treasuries).
| JumpCrisscross wrote:
| > _the market value of SVB 's assets is likely lower than
| $175B at the moment_
|
| Deposits are less, too. We won't have a good picture of
| their balance sheet until later.
| Denvercoder9 wrote:
| That's true, I should've said that the market value of
| SVB's assets is likely lower than their deposits at the
| moment. Of course we don't know for sure, but if the
| market value of assets exceeded deposits, they wouldn't
| have had to close down.
| JumpCrisscross wrote:
| > _we don 't know for sure, but if the market value of
| assets exceeded deposits, they wouldn't have had to close
| down_
|
| They would have borrowed at the Fed's discount window if
| it did. That's the systemic solution to illiquidity. The
| FDIC is a fix for insolvency.
| kgwgk wrote:
| the ability to wait till maturity = takes billions in
| losses
| locallost wrote:
| I don't get this comment at all. The post you're replying to
| literally says the bank has more assets than 250k per client.
| I read somewhere the insured amount is around $8B whereas the
| bank's assets are at least 20x that. Where should that money
| go if every client gets capped at 250k?
| koolba wrote:
| They have more than $250K per client but not the full
| value.
|
| Each account should be allocated MIN(balance, 250K). Then
| the remaining should be allocated pro rata. So if one is
| still owed $1000 (ie the balance was $251K before the
| collapse), then that account's share of the remainder is:
| $1000 / (sum of all remaining balances owed)
|
| The haircut per account is only on amounts beyond $250K.
| locallost wrote:
| But that's exactly what the post you replied to said?
| Anyway, I am against a bailout here, but haven't seen one
| announced.
| cscurmudgeon wrote:
| The salty commenters think it should go to them or the govt
| but won't say it out loud lol.
| ericd wrote:
| >then distribute the rest pro rata based upon closing
| balance from when the fed's took over.
|
| The second part of that sentence addresses your question.
| imustbeevil wrote:
| > Money to depositors for amounts greater than $250K is a
| bail out. They have no right to that money from the Feds.
|
| No. The feds aren't giving anyone fed money, they're selling
| SVB's assets and giving the people they owe their own money
| back. There isn't enough money to give everyone 100% back, so
| they won't be getting 100% back. There's no extra government
| money making anyone "whole". They're just winding down the
| assets so they don't all get stolen like FTX.
| auntienomen wrote:
| Extra money is precisely what Yellen is proposing. The
| government will backstop the depositors to prevent a run on
| every other non-SIFI. This is the right move.
| BaseballPhysics wrote:
| > Extra money is precisely what Yellen is proposing.
|
| Then you should be able to offer up a quote where she
| says that.
|
| Hint: she never said that.
| belter wrote:
| Under what regulatory framework?
| imustbeevil wrote:
| > Extra money is precisely what Yellen is proposing.
|
| That's certainly not what any of the articles quoting her
| are saying.
| a13n wrote:
| This is short sighted. If the government doesn't make
| depositors whole then people and companies all over the world
| lose trust in US banks and eventually US dollars. This is a
| federal problem.
|
| It makes sense to make depositors whole, they're innocent
| here. It doesn't make sense to make SVB whole for managing
| their risk poorly.
| Denvercoder9 wrote:
| > If the government doesn't make depositors whole then
| people and companies all over the world lose trust in US
| banks and eventually US dollars. This is a federal problem.
|
| I fail to see how the government doing exactly what the law
| says and what they've always said they will do makes people
| lose trust in the US.
| [deleted]
| koolba wrote:
| No, they'll have high trust that amounts up to $250K are
| covered. Because that's what's covered.
|
| Any treasurer or CFO with half a brain knows that.
| metalspot wrote:
| no. absolutely not. these are smart greedy people playing
| the game for their own benefit. they knew the rules. if
| they lose they eat the losses just like anyone else.
|
| it is all the bailouts and insider dealing that kill
| confidence in the dollar and the banking system. enforcing
| the rules increases confidence.
| nonethewiser wrote:
| Well it's not even about innocence. They have the strongest
| legal claim.
| matheusmoreira wrote:
| > If the government doesn't make depositors whole then
| people and companies all over the world lose trust in US
| banks and eventually US dollars.
|
| Good. That's _exactly_ what should happen. It should happen
| every single time, repeatedly. People should have to learn
| the hard way that banks and the government cannot be
| trusted.
|
| These are the consequences of their irresponsibility. They
| should not get to avoid those consequences just because
| "banks and USD are important" or whatever excuse they come
| up with. If the US really is all about the free market as
| it claims, it should allow these banks to fail and everyone
| who trusted those banks to lose. Customers lent their monet
| to this bank and they lost. Allow them to face the
| consequences of their actions.
| lotsofpulp wrote:
| It does not make sense to let bank shareholders profit from
| having an implicit guarantee of federal taxpayer funded
| bailouts.
|
| The bank's owners have to pay $x for buying FDIC insurance
| of up to $250k per account per person. If it actually costs
| $y > $x to insure for more than $250k, then that is quite a
| windfall for the bank owners at the expense of federal
| taxpayers.
| a13n wrote:
| I'm with you that we shouldn't make a habit of spending
| taxpayer dollars to make depositors whole. We should have
| better regulation so this couldn't have happened in the
| first place. Banks should be required to manage their
| risk better.
|
| But in this particular instance taxpayers should want to
| invest in trust in US banks and dollars until regulation
| is corrected.
| JumpCrisscross wrote:
| > _We should have better regulation so this couldn't have
| happened in the first place_
|
| We do. SVB lobbied successfully to exempt itself from the
| Fed's stress tests and Basel III, both of which test
| assets for interest rate risk and would have caught this
| problem.
| [deleted]
| [deleted]
| lotsofpulp wrote:
| This particular instance happens all the time.
| a13n wrote:
| top 20 banks do not fail all the time
| lotsofpulp wrote:
| What is the significance of top 20? And SVB was far
| closer to the 50th bank than a top 10 bank.
| amalter wrote:
| There's no moral hazard if we pay out depositors and let
| the bank fail. The big "problem" in 2008 was that the
| bailed out banks were made whole with equity injections
| and then continued to grow. (Although the government did
| quite well on those investments).
|
| SVB is dead. Shareholders are getting zero. The losses
| are not being socialized. But because we don't want a
| bank run on every regional bank, let's make depositors
| whole.
| unity1001 wrote:
| The general public doesnt care about the shareholders.
| For the public, a bailout is a bailout. By lending money
| to that bank, depositors took a risk and participated in
| the bank's business. It was NOT a state bank. It did not
| pay any taxes, fees, or anything else to the public's
| treasury more than the $250k per account insurance. If it
| did, you would be right - everything could have been
| rescued to the order of that insurance. But there is no
| such insurance over $250k.
|
| > make depositors whole
|
| It seems that the big money people affected by this chose
| this nonsensical, archaic term to use in place of
| 'bailout' so that people wont react. It really doesnt
| work and it looks way, way nonsensical.
| lotsofpulp wrote:
| Why even bother with the fiction and payroll of the FDIC
| and a $250k limit and FDIC insurance premiums if there is
| always an implicit taxpayer bailout?
|
| Obviously that insurance costs something, and the moral
| hazard is that both bank owners and depositors of banks
| with lax standards get to financially benefit from lower
| costs due to all federal taxpayers subsidizing their
| risk.
|
| Anytime taxpayers give money, they are tilting the
| incentives such that the risk of the loss being bailed
| out is now going to be underpriced, because it will be
| assumed a bailout is coming.
|
| If the goal is to have no depositor in the US ever lose
| any money, then the government should just give everyone
| an account they can transfer money into and out of. It
| will earn no interest, and no bank owners will profit
| from the taxpayers' subsidy.
| peyton wrote:
| The FDIC does this as a matter of course with LSAs
| though.
| lotsofpulp wrote:
| What is an LSA? Legal service agreement? I am not sure
| how it applies.
| zerocrates wrote:
| Loss-sharing (or "shared loss") agreement.
| tome wrote:
| The moral hazard is that if depositors know they'll
| always be made whole then they'll keep their deposits in
| riskier institutions and therefore executives who are
| taking on undue risk will win at the expense of the
| insurance provider. (I think this is probably what
| lotsofpulp was saying in a different way.)
| PeterisP wrote:
| Why would doing the exact same thing as many, many previous
| times - here's a list
| https://www.fdic.gov/resources/resolutions/bank-
| failures/fai... - suddenly make people and companies all
| over the world lose trust in US banks and eventually US
| dollar, if that didn't happen in all the many previous
| times when depositors weren't made whole (beyond the limits
| insured by FDIC) after a bank failed?
| a13n wrote:
| This time is different in so many ways. Top 20 bank. 2nd
| biggest bank failure in US history. $200B+ assets.
|
| You don't want wealthy people and companies thinking
| their money isn't 100% safe in a top 20 US bank.
| deepsquirrelnet wrote:
| Yes, surely using the government to let private businesses
| run roughshod on the uninvolved public will prove that we
| are sufficiently exploitative to guarantee your money's
| safety.
|
| Don't worry world, when push comes to shove, those who had
| nothing to do with it will bear the responsibility!
|
| I don't think that's a better message for anyone.
| Ekaros wrote:
| And if it does. And sets new standards it leads to massive
| moral hazard and potential of even bigger and even worse
| failures in future. Why not run a ponzi scheme as bank if
| in the end tax payers or fed ends up making everyone whole.
| After you have spend years making money from fraud. With
| your depositors happily participating in as they have zero
| risk.
| rayiner wrote:
| They're not "innocent" having chosen to put more than the
| insured amount in "Silicon Valley Bank."
| rafael09ed wrote:
| Maybe we should have a public banking option if the
| government's going to give everyone their money anyway
| [deleted]
| [deleted]
| a13n wrote:
| Yeah I think the capitalist version of that is more
| regulation to the point where large banks aren't able to
| take on so much risk to depositors.
| idopmstuff wrote:
| I'm pretty baffled to see so much of this on HN. Like a whole
| lot of people here, I've worked at startups for my whole
| career. People here are effectively suggesting that I shouldn't
| get my paycheck and that the company I work for should lose
| most of its money because our CEO used a well-reputed bank?
|
| Absolutely wipe out the equityholders of SVB. They deserve
| nothing, because that's what you should end up with if you own
| stock in a company that goes bankrupt. Claw back executive pay
| if that's something you can do. But kill a bunch of startups
| because of their choice of financial institution? I just don't
| get where that comes from.
| ohgodplsno wrote:
| [flagged]
| AnIdiotOnTheNet wrote:
| I'm not sure what you're expressing is a very helpful
| comment, but damned if it isn't a good description of my
| gut reaction to all this.
| ordinaryradical wrote:
| I'm getting paid below market rate, I'm the sole provider,
| and I have two children in preschool. So while you chortle
| over "tech bros," I'm looking at the end of my family's
| healthcare and financial stability.
|
| When everyone around you looks like an asshole, you might
| be the asshole.
| steve76 wrote:
| [dead]
| EFreethought wrote:
| Poster did not say everyone around them is the asshole.
| Just everyone in SV.
|
| And frankly I agree.
|
| You guys kept telling us for years you are smarter than
| the rest of us and disruption is great. And now you want
| my money.
|
| So suck it up, leave SV, get a job somewhere else. If you
| are so damn smart, it should be easy.
|
| Frankly, it's way too late for all you bros to lecture us
| about nuance. Or anything else.
| ohgodplsno wrote:
| And I wish you absolutely the best in finding a new job.
| Your salary will be paid even if the company goes
| bankrupt, and while times will be hard, I have no doubt
| you will find something.
|
| I am, indeed, an absolute asshole. But then again, my
| post only said something about finding it funny, not that
| I'm not an asshole. Nor does it preclude people
| participating in the clown show from being clowns.
| matheusmoreira wrote:
| In other words: consequences are good.
|
| We enjoy watching people face the consequences of their
| actions. We absolutely hate it when they manage to avoid
| the consequences.
| hcks wrote:
| This is pure loser resentment lol
| tome wrote:
| This comment sounds very harsh on first reading but I'm
| having trouble finding anything actually incorrect about it
| ... I just pray this doesn't hit the wider economy.
| DonHopkins wrote:
| Shitty ass dog feeders are connected with wifi, not
| bluetooth.
| zdragnar wrote:
| It overlooks everyone who is just starting out, everyone
| employed at these companies that isn't making techbro
| salary like the receptionists, custodial staff, QA,
| workers on visas, whatever.
|
| Simple fantasies for simple minds, no different than lazy
| racism or any other form of bigotry.
| ohgodplsno wrote:
| Indeed, for that extremely minor part of companies that
| about noone on HN has ever cared about, except when it
| becomes practical to use them, it's troublesome. But
| since there still exists hundreds of billions of dollars
| ready to be wasted on bullshit endeavours,I have no doubt
| they will all find jobs soon in the next cloud cat feeder
| startup.
|
| Your mind immediately equating good old schadenfreude
| with lazy racism is indeed telling, but I'll refrain from
| saying anything, Americans have never been excellent at
| either context or nuance.
| zdragnar wrote:
| > but I'll refrain from saying anything
|
| Sounds like you did.
|
| In any case, schadenfreude typically falls into one of
| three categories: justice, rivalry or aggression. The OP
| _sounds like_ they are experiencing the justice aspect-
| that these people who contribute so little are now
| enduring hardship.
|
| The problem is that "these people" is just another lazy
| stereotype- it is just another form of aggression;
| equating everyone who is hurt here as "easy jobs that can
| easily be replaced" is not unlike assuming everyone
| living in a ghetto neighborhood is a thug.
|
| The effects and scope of harm of the stereotype may be
| different, but both come from the same mental state of
| mind- these people are other, they don't live like I
| think they should, and they get what they deserve,
| despite the fact that the "they" in the sentiment is not
| representative of the people harmed by it.
| tome wrote:
| That's a fair point.
| baq wrote:
| No idea why you're downvoted. Work in tech for 15 years and
| this is spot on
| JumpinJack_Cash wrote:
| > > I've worked at startups for my whole career
|
| HN has grown a lot and there are much more people who are not
| necessarily from SV.
|
| In the real world, if you live in SF, work in startups doing
| what you like, get paid well, not trapped in 9-5 etc.
|
| That's elite and nobody will ever feel sorry for you. As a
| general rule every guy should always expect nobody to feel
| sorry for them, but this particular set of circumstances and
| the area of the country where they unfolded scream
| 'millionaires problems' to those roaming in the interwebz.
|
| And now HN is part of the interwebz.
| oh_sigh wrote:
| No one is asking anyone to feel sorry for them. They got
| punched in the nose, and they just don't want to be punched
| in the nose again.
| JumpinJack_Cash wrote:
| At the expense of taxpayers. That is the crux of the
| argument.
|
| People are stressing the 250k FDIC requirement which is
| Federal and thus equal for everybody and it's one of the
| very few things that is equal for everybody across the
| land regardless of you living in Mobile, AL or San Jose,
| CA.
|
| People are against the extra-insurance/safery-net/bailout
| being awarded to everything based in NYC and SF because
| everything in NYC and SF is supposedly too big and too
| important to fail. In this case it's not even failure but
| a minor inconvenience because as it stands the money is
| there, it's only tied up.
| hedora wrote:
| First of all, the FDIC has always arranged to make
| depositors whole when banks failed. This is why there
| weren't massive runs on bank checking and savings
| accounts in 2008.
|
| Second, CA gets the least back in federal spending per
| dollar of taxes paid, and NY is close:
|
| https://worldpopulationreview.com/state-rankings/federal-
| spe...
|
| Pre pandemic, only 11 states were turning a profit:
|
| https://howmuch.net/articles/federal-budget-receipts-and-
| exp...
|
| The regions most upset about federal safety nets are also
| the ones that benefit the most from them.
|
| Third, it is not a minor inconvenience when $10M's of
| investor money from a fundraising round gets permanently
| lowered to $250K (no "bailout") or if a startup stops
| making payroll for 2 years (upper bound of the time range
| the FDIC has proposed).
| JumpinJack_Cash wrote:
| > > Second, CA gets the least back in federal spending
| per dollar of taxes paid, and NY is close
|
| State by State statistics are irrelevant considering that
| people who are getting up in arms are small business
| owners and entrepreneurs who will never receive a bailout
| because considered not structurally important or not big
| enough. And yes on a percentage basis there are more of
| them in flyover America, but just because flyover America
| States get more federal funds doesn't mean that
| contractors for such goods and servies are based there at
| all.
|
| Plus a contract with the Govt. for a good or service to
| be provided is way different than a bailout. In one
| instance it's the Govt. acting as a customer, in the
| other it's the Govt. coming to the rescue to save
| businesses from bad outcomes.
|
| > > Third, it is not a minor inconvenience when $10M's of
| investor money from a fundraising round gets permanently
| lowered to $250K (no "bailout") or if a startup stops
| making payroll for 2 years (upper bound of the time range
| the FDIC has proposed).
|
| On a systemic level it's a minor inconvenience because
| the name of the game of a country is to build cool
| products and services in order to consume them, somebody
| else will have a try at building a cool product or
| service and those who were banking with SVB will still
| have all the means to consume them (which in the end is
| what really matters) thanks to the FDIC
|
| And besides, get real, 99% of people will never see 250k
| lump sum being credited on a bank account they control
| (either corporate or personal) , much less a 10M lump sum
| which is 99.999 percentile territory, which brings me
| back to my OP point:
|
| Nobody will ever feel sorry for people who live in the
| 'top right' area of the chart of life. Or they will but
| there should not be absolutely any money involved. As an
| example people will feel sorry for a fighter jet pilot
| involved in an accident during training even though the
| guy spent his whole life living the dream flying above
| the cloud and the sound barrier.
|
| This is the state of the art. Plain and simple. As
| evidenced by the honors given to the fallen pilot and the
| insults and spits thrown in the direction of those who
| are receiving the bailouts.
|
| Call it a reasoning defect, logical fallacy, whatever, I
| don't care. It's the state of the art, as evidenced by
| people reactions. So if you are so disturbed by other
| people indifference, stop (or alternatively never try)
| raising (and dealing) money but get a cool job giving you
| mad emotions and away from the limelight of the financial
| press and the corporate board room, that way you'll never
| have anything to worry about as it pertains to pitchforks
| and social hatred.
| AmericanOP wrote:
| Before people get too excited about letting it all burn, I
| recommend _everyone_ watch this talk by an economist on the
| 2008 recovery:
|
| https://www.youtube.com/watch?v=RrFSO62p0jk
|
| Spoiler alert (18:30): It was entrepreneurship that turned
| the economy around. Not fed policy.
|
| SVB put their deposits in US Treasury Bonds. Commonly
| regarded as the safest investment vehicle there is. Then the
| fed raised interest rates, completely screwing over this
| strategy. Then VCs panicked, like sheep.
|
| So now we're in a situation where the most successful
| startups in the innovation sector are at risk of being wiped
| out while the US economy is being guided toward recession to
| cool inflation. Go watch that talk- then tell me you really
| think its a good idea to let it all burn.
| derivagral wrote:
| SVB did not put their deposits only in tbonds.
|
| https://news.bloomberglaw.com/bankruptcy-law/svb-mbs-
| sales-m...
| EFreethought wrote:
| > It was entrepreneurship that turned the economy around.
| Not fed policy.
|
| Then get yourselves out of this mess.
| postexitus wrote:
| US Treasury Bonds are one of the safest investment
| vehicles, IF you match the interest and maturity to your
| liabilities. You cannot go and buy bonds that will mature
| and give you 1% per annum in 10 years when you have a
| debtor awaiting payment in 90 days. That's the huge risk
| mismanagement SVB did.
|
| Having said that, I don't think startups will suffer big
| time - but they were the ones also who created the bankrun
| fueled by VC panic. However mismanaged SVB was, given
| enough time they had enough resources to turn this around.
| Bluecobra wrote:
| This needs to be sticked at top. It's not that hard to
| build a Treasury ladder with three month bills. This is
| not complicated and you don't need to be Warren Buffett
| to figure this out.
| theRealMe wrote:
| One thing to remember about your last point is that the
| startups and VC's that DIDN'T cause the bank run are the
| ones that will be hurt by this. So if anyone is in here
| thinking "they shouldn't have tried to withdraw their
| money, thereby creating a bank run, if they didn't want
| to lose their money!" You have to realize that there two
| separate groups of people here: the ones that withdrew
| their money and caused the bank run, and the other ones
| that didn't cause the bank run and lost their money.
|
| That said, I don't blame anybody for causing the bank
| run. If I had a reason to believe that my personal bank
| might not be able to give me my money if I didn't get it
| out right now, there is zero chance that I would leave my
| money there to vanish just to avoid causing a bank run
| for other people. Morals break down when my life savings
| and livelihood are on the line.
| NotACop182 wrote:
| By design the feds wanted to increase unemployment and
| salaries. Problem solved? I'm not trying to be mean or
| condesending. But who would / should the unemployed / wages
| come from? What sector?
| tsunamifury wrote:
| It turns out that you can make everyone unemployed and it
| won't fix the supply/labor shortage created by a lack of
| immigration and supply chain disruptions. The fed is
| using a hammer to fix a chipped vase because it's all
| they know what to do.
| NotACop182 wrote:
| I strongly agree. The feds do not have the tool set to
| fix the problem on inflation. 50% of inflation is
| opportunity by companies testing new price points.
|
| We are in a pickle I don't think we are ready for what's
| to come in the future. I feel there will be a lot of pain
| in the future for the "little guy"
| tsunamifury wrote:
| In 2008 and 2020 they had all sorts of special
| acquisition funds to do targeted support, now when the
| little guys is screwed suddenly they don't have anything
| but raising interest rates? Like not even targeted
| interest rates?
|
| You know what I think? This is just like any other time
| in history the labor class started getting too big for
| its britches. We are being told to go back down and stay
| there.
|
| And that's a really stark reality now that might change
| someone peoples support for government.
| matheusmoreira wrote:
| So what you're saying is the bank made investments based on
| a whole lot of assumptions. These assumptions were quickly
| invalidated by US policy changes and then the bank lost
| everything.
|
| Yes, absolutely let it all burn. They risked it all on
| their "strategy" and lost. Why should they get bailed out
| in literally any way? I don't see the government showing up
| to bail me out when my "strategy" gets me liquidated, why
| the hell do these banks deserve that treatment? Let them
| face 100% of the consequences of their choices.
| mind-blight wrote:
| There are hundreds of billions in assets owned by SVB.
| The accounts with grocery assets likely contain companies
| that will be future unicorns.
|
| What is there to burn? A large bank will likely purchase
| the assets/debts outright, the shareholders will get
| screwed, and the depositors likely be made whole. There's
| no bailout in that scenario
| tsunamifury wrote:
| This is the second completely detached from reality
| statement you have made. The US government requires that
| banks spend 90% of their deposits on tbonds so that they
| can continue to fund the process of money creation.
|
| The strategy is mandated by regulation post 2008. The
| mistake svb made was buying 10 year instead of 3 month.
| Hard to explain that one other than the fed said
| inflation would be transitory and it wasn't.
| matheusmoreira wrote:
| > The mistake svb made was buying 10 year instead of 3
| month. Hard to explain that one other than the fed said
| inflation would be transitory and it wasn't.
|
| So what you're saying is the bank made investments based
| on a whole lot of assumptions. These assumptions were
| quickly invalidated by US policy changes.
|
| Got it.
| jmuguy wrote:
| Something tells me you don't understand the difference
| between the bank, its shareholders, and its account
| holders. Unless you just think its peachy that a bunch of
| businesses lose everything because their bank made some
| actually not all that risky investments and some people
| got spooked. This isn't 2008.
| matheusmoreira wrote:
| > Something tells me you don't understand the difference
| between the bank, its shareholders, and its account
| holders.
|
| I understand the "difference" fine. I just refuse to
| believe there actually is a difference. They're all the
| same to me: people who lent their money to the bank so it
| could be invested and pay them dividends.
|
| > Unless you just think its peachy that a bunch of
| businesses lose everything because their bank made some
| actually not all that risky investments and some people
| got spooked.
|
| Why, that's exactly what I think. Looks like that "not at
| all that risky investment" didn't bring the outcome
| everyone expected. Oops. Looks like the free market
| screwed them over again. Such is life.
|
| I suppose it's fine if they manage to liquidate the
| bank's assets and recover some of it. If they really
| insist on recovering it all, maybe they should liquidate
| the bank manager's personal property as well. As long as
| they don't see even one cent of taxpayer money, it's
| moral.
| pbourke wrote:
| If your strategy is keeping money in an FDIC insured bank
| account the government will absolutely bail you out. You
| have a guaranteed bail out up to the deposit insurance
| limits and a high-probability bailout for close to 100%
| of your funds through FDIC resolution.
| baq wrote:
| The money in FDIC is the banks' money! Zero taxpayer
| investment.
| emkemp wrote:
| NitPick: The Deposit Insurance Fund invests in Treasury
| securities, so technically there is a little taxpayer
| money from interest payments.
|
| But the contributions to the Fund are all from member
| banks, not from the Federal budget.
|
| https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_C
| orp....
| TigeriusKirk wrote:
| The bank is already gone. It's been wiped out.
|
| The discussion is now about the depositors.
| matheusmoreira wrote:
| Depositors lent their money to the bank. They took a risk
| by trusting a bank to manage their money for them. The
| bank took their money, invested it and lost it all.
|
| Let them lose too.
| baq wrote:
| It didn't lose it all. About 90% is still there as assets
| and is being sold as we speak. The liquid assets have
| been sold already, so 50% will go back to the depositors
| next week.
| matheusmoreira wrote:
| If it hadn't become insolvent in the first place, there
| would have been no need to liquidate its real assets in
| order to pay off liabilities.
| baq wrote:
| Of course but the point still stands. If it lost it all
| we'd all be in serious trouble. It lost ~10% and there's
| a nonzero chance depositors will be made whole anyway
| (with zero taxpayer money involved).
| ctoth wrote:
| You are unbanked? How well does this work in 2023?
| matheusmoreira wrote:
| I wish. Not completely. I do make every possible effort
| to move wealth off of banks though.
| paulpauper wrote:
| Because of secondary effects. It's not like SVB failure
| is limited to just depositors and start-ups. Which means
| way more damage than just the nominal amount lost.
| oska wrote:
| You _need_ failures to 'ripple through the economy'
|
| Removing these ripples brings greater risk, which is
| artificial stability and moral hazard
|
| And taking your analogy further, show me one body of
| water in nature that doesn't have ripples and waves on
| its surface (that vary in magnitude)
| wpietri wrote:
| As a long-time tech person and someone who has started
| multiple companies, including one venture-backed one, I'm
| happy to explain why I think uninsured depositholders should
| not have their losses subsidized by taxpayers.
|
| One, anybody with a bank account has heard about the FDIC and
| the FDIC insurance limits. Presumably anybody smart enough to
| raise millions of dollars know that if part of something is
| insured, the rest is uninsured. There are in fact good
| systemic reasons both for the FDIC to exist and for the limit
| to be high for individuals but low for companies.
|
| Two, the tech industry, especially the VC-funded end, is
| forever crowing about the power of the marketplace. How
| regulation stifles valuable innovation. How government
| intervention is a problem, not a solution.
|
| Three, among startups, market-driven disruption is
| practically a religion. Startups destroy existing companies
| all the time. Quite often it's an explicit goal, where
| startup X lists existing players A and B as companies whose
| lunches will get eaten because they are making bad choices.
|
| Four, there has been endless puffery and chest-thumping among
| VCs and tech startups how their genius justifies pocketing
| billions and billions of dollars when times are good. Best
| and brightest, incredibly hard workers, blah blah blah.
| Including a special tax exemption for VCs, because they're
| just such amazing financial wizards.
|
| Five, startup go under all the time. Which, having
| experienced it, definitely sucks. But when a startup goes
| under due to bad choices or bad luck, that's the game.
|
| So when I put this together, I firmly believe that startups
| with bad treasury management should not be subsidized by
| taxpayers. If we're so smart and amazing that we get to
| reshape segments of the economy, we're smart enough to follow
| basic financial advice like "don't put all your eggs in one
| basket". If we choose to play the game that might make us
| rich, we should not suddenly complain about the rules when we
| lose.
|
| In practice, the likely outcome here is that depositors
| either take no haircut or a modest one. Anybody going out of
| business because of that was already on the edge. And that
| will be partly because their investors will not see them as
| worthy of a bridge loan or an accelerated next round.
|
| Which, again, sucks for the people involved. But it's not a
| problem for taxpayers to solve. If we're going to spend
| billions of dollars on improving the safety net, I think
| startups are way, way down the list of priorities.
| nullc wrote:
| > Two, the tech industry, especially the VC-funded end, is
| forever crowing ... there has been endless puffery and
| chest-thumping among VCs and tech startups
|
| When you find yourself cheering for collective punishment
| you should know that you are absolutely the bad guy.
| wpietri wrote:
| I am not in fact arguing for collective punishment. I am
| arguing for people experiencing the consequences of their
| choices. The paragraph you quote is about their ardent
| insistence on being allowed to make those choices without
| interference.
| bart_spoon wrote:
| What choices were made by the thousands of employees who
| work for the startups who can no longer pay them?
| wpietri wrote:
| That looks to be an unlikely scenario, but let's indulge
| it.
|
| Can capitalism be pretty harsh on workers? Sure. 1-2
| million people get laid off or let go every month, and
| it's been that way for a long time:
| https://fred.stlouisfed.org/series/JTSLDL
|
| Does that suck? Speaking from experience, yes. Should the
| federal government subsidize startups and/or their
| funders to save a few thousand jobs? Absolutely not.
|
| If we want to spend billions on a better social safety
| net, let's do it for everybody, not some unprofitable
| companies whose investors don't see them as worth saving.
| theGnuMe wrote:
| ummm.. they chose their employer?
| wpietri wrote:
| Normally I'd think that an unfair point. We can't
| generally expect workers to evaluate the financial
| soundness of their employers. But we are talking about
| startups here. Everybody going in knows that most
| startups fail. Hopefully everybody has an exit plan.
| theGnuMe wrote:
| > We can't generally expect workers to evaluate the
| financial soundness of their employers.
|
| Why not? It's like fundamental...
| rodgerd wrote:
| Are those employees of companies whose business model is
| "driving artists out of business by large-scale copyright
| infringement and automated drawing based on it?", for
| example?
| nthngtshr wrote:
| So how did you manage your treasury when you were running
| your businesses? Did you split it 10 ways? Did you buy t
| bills?
| wpietri wrote:
| This was back when A rounds were much more modest in
| size. We put it in one of the largest and therefore most
| highly regulated banks, the ones that now have to meet
| Basel III standards. If we'd had more money, we would
| have put it in 2 banks. A solution that would have been
| enough for almost everybody here, as the main thing
| causing a risk of not making payroll is the way the FDIC
| is locking up a good chunk of the uninsured funds while
| they sell off SVB's assets.
| PragmaticPulp wrote:
| > Like a whole lot of people here, I've worked at startups
| for my whole career. People here are effectively suggesting
| that I shouldn't get my paycheck and that the company I work
| for should lose most of its money because our CEO used a
| well-reputed bank?
|
| Cynicism reigns supreme on social media right now, and HN
| comments are a type of social media.
|
| There is also a deeply engrained "us versus them" mentality
| baked into a lot of the anger. The SVB scenario has more
| people identifying the "us" part as taxpayers (who would
| presumably foot the bill for backstopping losses) and the
| "them" part as VCs and investors.
|
| Interestingly, if this was rephrased as an "Ask HN" post
| where someone was concerned about their next paycheck because
| their startup's bank failed, I suspect the sentiment would be
| completely reversed. The more relatable the story, the kinder
| the comments.
| rmilk wrote:
| I get what you're saying, but how many well-intentioned
| startups have imploded and ran out of money the day before
| payday due to some unlikely risk? Lots (I was in 1-2 of
| them). Should we also try to salvage them?
|
| "Well-reputed bank" is not the same as zero risk money
| management. Look at the fine print of every one of those
| business checking accounts and you see there is clearly
| some risk, including loss of capital if you're over the
| $250k limit. Everyone who has a retirement account in money
| markets at a "well-reputed bank" knows about this risk, so
| how can we let the CFO slide on finance risk management
| that was clearly their most important responsibility?
| Business continuity insurance, lines of credit, investor
| infusion, etc. Debt sales, etc. There are ways to get
| around an unexpected cash crunch.
|
| But there's no excuse for not knowing the risk and
| expecting a $1M checking account to work like your personal
| checking account. This was the CFOs job at every one of the
| companies that is now in a crunch.
| simonh wrote:
| There's also the modern 'anti-capitalist' crowd that
| nebulously always blame everything on 'capitalism' while
| also unironicaly enjoying, you know, owning private
| property, choosing their own jobs and investing in stocks,
| while at the same time distrusting government. Because we
| don't actually need to implement Marxism or state ownership
| or any other alternative economic system, we just need to
| not capitalism. Or something. I'm sure they're loving all
| of this.
| nerdponx wrote:
| Why should taxpayers pay for all of it? It's not like SVB
| had $0 in assets. Liquidation will hopefully cover enough
| to keep the lights on at smaller companies with uninsured
| deposits. The big depositors like Roku might lose
| something.
|
| Lest we forget that even TARP was actually a net profit for
| taxpayers.
| roenxi wrote:
| There have been losses. The order of people who have to feel
| the pain for that is:
|
| 1. Decision makers (the equity holders).
|
| 2. Active enablers (eg, certain creditors, possibly
| management).
|
| 3. Passive enablers (eg, other creditors, the startups who
| held money in the bank).
|
| 4. Bystanders (eg, taxpayers).
| sbaiddn wrote:
| Your company _is_ the equity holder. You loosing last months
| paycheck is no different than what happens in the rest of the
| country any time an employer declares insolvency.
|
| Also, I don't think people in SV appreciate how much rancor
| and resentment their behavior has generated in the last
| fifteen years.
| nerdponx wrote:
| Plenty of people not in SV, engaging in actual productive
| enterprise, were also using SVB.
| sbaiddn wrote:
| While I sympathize with them more than I would a tech
| bro, the principle is the same.
|
| What would happen if this happened to an employer's bank
| in Indiana?
|
| Your company's assets don't exist any more and you're
| insolvent. US bankruptcy protection is very generous,
| apply for it and try and to regroup.
| nerdponx wrote:
| > What would happen if this happened to an employer's
| bank in Indiana?
|
| Literally the same thing would happen, and people
| wouldn't be making such a big deal about it being a
| handout to greedy convenience store owners who didn't
| perform exhaustive diligence on the bank up the street.
| s1artibartfast wrote:
| I dont understand the hate against SV/ tech bros. What did
| they ever do to anyone else?
|
| Is it purely jealousy, or do people feel harmed?
| sbaiddn wrote:
| Aside from weaponizing the internet to help DC censor
| people it deemed icky? Taibbi testified in Congress _just
| this week_ about it.
|
| Or, if in a touristy area, flooding their residential
| neighborhood with unregulated AirBnBs?
|
| If bicycle/motorcycle rider, putting "self/driving" cars
| they knew cant detect two wheeled vehicles?
|
| Adding a police detector to continue providing illegal
| taxi service in cities?
|
| Having a business model where our personal information is
| syphoned off and commoditized?
|
| Creating social media creating new, widespread,
| psychological diseases?
|
| Creating the infrastructure for mass surveillance through
| by selling access to their product through government
| partnerships?
|
| This is HN... all these stories well documented here.
| s1artibartfast wrote:
| Sounds like people cant distinguish between bad actors
| and actions and the technology sector at large.
|
| It also sounds like they can't distinguish between their
| own failings (in terms of personal behavior and bad
| government) and the failings of businesses.
| Khaine wrote:
| No. People don't want you to get special treatment. Your firm
| should have insurance to cover the deposits over 250K, or
| split the money across several banks. It didn't as such it
| should deal with the consequences. Which are it may not get
| all of its deposits back.
|
| When a building company, building my house goes bust. The
| government doesn't step in to get someone to finish building
| it. When I order goods from a company and it goes bust, the
| government doesn't step in to ensure I get my goods.
| JumpCrisscross wrote:
| > _because our CEO used a well-reputed bank_
|
| That didn't have an investment grade rating, where $250k
| comes out of taxpayer coffers Monday morning, and where
| everyone has unemployment insurance? Yes.
|
| The assets of the bank should go to your company first. But
| the public purse should not be opened.
| tock wrote:
| > $250k comes out of taxpayer coffers Monday morning
|
| This isn't coming out of taxpayer coffers. FDIC insurance
| premiums are paid by the banks.
| JumpCrisscross wrote:
| > _isn 't coming out of taxpayer coffers. FDIC insurance
| premiums are paid by the banks_
|
| Fair enough. The FDIC is funded by premiums but
| backstopped by the Treasury. There is no private
| insurance function that pays out at this scale the next
| business day.
| KptMarchewa wrote:
| Which scale? 0 dollars? All of what will be paid on
| Monday will be paid out of SVB's assets, which are being
| liquidates as we speak.
| JumpCrisscross wrote:
| > _what will be paid on Monday will be paid out of SVB 's
| funds_
|
| Possibly, but not necessarily. FDIC funds pay insured
| deposits before determinations about assets are made.
| prewett wrote:
| I'm beginning to wonder if a lot of the posters to these kind
| of thins are just young. When I was 25 I thought I had well-
| reasoned and insightful opinions, and I certainly had
| forceful opinions. But I had no depth of knowledge in things
| like finance and politics, and thus, had no way of knowing
| how much I didn't know. A few years ago I watched Ian
| Shapiro's lectures on "Politics in the Modern World" (a
| course from Yale, developed from a request to help explain
| the rise of Trump). I realized that I thought I had
| insightful opinions, but really it was just rubbish because I
| had no understanding of political science, recent history, or
| even different forms of government and their different
| failings.
|
| I also felt differently about money when I was 25, because
| obviously I didn't have any. There was no way I could have
| any, because I had only been working for a few years (and
| junior devs were paid a lot less in those days). It seems
| like it would have been easy to be jealous of rich people at
| 25. Or just jealous of startup-employees who, judging by HN
| posts (/s), are all making 400k/year. In fact, I think some
| HN posts have claimed junior dev salaries more than what I
| was making after 20 years in the industry, which I could see
| might lead to some jealousy. Particularly if combined with a
| lack of perspective.
| kamaal wrote:
| >>People here are effectively suggesting that I shouldn't get
| my paycheck and that the company I work for should lose most
| of its money
|
| I got no dog in this fight(as I'm an Indian, and stay in
| India). But I guess what they are saying is they don't want
| to be paying for it. They just want whoever is responsible to
| make somebody else pay for these problems.
|
| So bailout is ok, they just don't want to pay for it, and may
| be find other people(VCs, other billionaires) who can
| invest/bailout that bank on their terms.
| lotsofpulp wrote:
| Colloquially, a bailout implies taxpayer funded. Otherwise,
| it is known as charity/donation/investment.
| [deleted]
| theGnuMe wrote:
| Yes it sucks but rules are rules. Existential risk
| management.
| belter wrote:
| It's coming from the same system that probably led you to
| work at Startups your whole career. High risk for high reward
| on a lightly regulated capitalist system. If your CEO or CFO
| put all the money in one risky bank, it was bad financial
| management.
| DoneWithAllThat wrote:
| It wasn't a "risky bank".
| baq wrote:
| Oh but it was. It's been talked about at least since
| December.
| belter wrote:
| Not according to JP Morgan... -
| https://am.jpmorgan.com/content/dam/jpm-am-
| aem/global/en/ins...
|
| "The liability issue: extreme reliance on
| institutional/VC funding rather than traditional retail
| deposits.
|
| ...While capital, wholesale funding and loan to deposit
| ratios improved for many US banks since 2008, there are
| exceptions. As shown in the first chart, SIVB was in a
| league of its own: a high level of loans plus securities
| as a percentage of deposits, and very low reliance on
| stickier retail deposits as a share of total deposits.
| Bottom line: SIVB carved out a distinct and riskier niche
| than other banks, setting itself up for large potential
| capital shortfalls in case of rising interest rates,
| deposit outflows and forced asset sales. [Note: This
| chart appeared in our 2023 Outlook in a discussion on
| risks related to deposits, rising rates and quantitative
| tightening]..."
| capableweb wrote:
| Everything is pointing towards that it was a risky bank,
| with a "unusually high reliance on corporate/VC funding".
|
| Maybe SVB themselves downplayed this?
|
| Take https://am.jpmorgan.com/content/dam/jpm-am-
| aem/global/en/ins... as an example:
|
| > The liabiity issue: extreme reliance on
| institutional/VC funding rather than traditional retail
| deposits
|
| > While capital, wholesale funding and loan to deposit
| ratios improved for many US banks since 2008, there are
| exceptions. As shown in the first chart, SIVB was in a
| league of its own: a high level of loans plus securities
| as a percentage of deposits, and very low reliance on
| stickier retail deposits as a share of total deposits.
| Bottom line: SIVB carved out a distinct and riskier niche
| than other banks, setting itself up for large potential
| capital shortfalls in case of rising interest rates,
| deposit outflows and forced asset sales.
| newaccount2023 wrote:
| We have an existence proof to the contrary
| JJMcJ wrote:
| Their SVB Private subsidiary, which is an ordinary
| consumer bank (people deposit money, bank buys bonds and
| writes mortgages) is still in good shape and will
| probably be snapped up by a bigger bank in the next few
| dya.
|
| For the shareholders of SVB, Patio11 of course says it
| best:
| https://twitter.com/patio11/status/1634925745515692034
|
| > The sacred duty of equity is to take losses before
| depositors.
| peter422 wrote:
| What bank do you use?
|
| When was the last time you went over their deposit base and
| asset allocation?
| [deleted]
| JumpCrisscross wrote:
| > _When was the last time you went over their deposit
| base and asset allocation_
|
| Sweep account and credit rating. First is a one-time
| option. Second, an occasional check.
| hedora wrote:
| Sweep accounts are fine, but I'm not sure I'd bother with
| credit ratings. SVB's was basically as high as possible
| even for a few hours after the run started and before
| they closed:
|
| https://ir.svb.com/shareholder-and-bondholder-
| information/cr...
| JumpCrisscross wrote:
| > _SVB's was basically as high as possible_
|
| Borderline investment grade isn't "high as possible."
| hedora wrote:
| I misread the table. Thanks.
| [deleted]
| massysett wrote:
| I use an FDIC-insured bank. My deposits are under the
| limit for insurance. I don't care about its deposit base
| or asset allocation because that's the point of deposit
| insurance: to make retail depositors feel secure.
|
| On the other hand, a CFO with millions in cash is a
| professional whose job is to manage corporate risk. A
| competent CFO needs to account for things like bank
| failures, which do happen.
| peter422 wrote:
| Great now every startup and every business needs to hire
| a CFO because a bank can't be trusted to store any number
| higher than $250k?
|
| So if my nascent 5-person startup raises 1.2M your
| suggestion is I need to hire a CFO? That's going to help
| innovation?
| massysett wrote:
| Yes. If you manage $1.2M you need to be smart enough
| about managing it, or have some smart people advising
| you. I don't manage $1.2M yet I know there's a limit on
| FDIC insurance. If you manage $1.2M and you don't know
| that, maybe the people who gave you $1.2M made a mistake.
| salawat wrote:
| If you raise $1.2M... you're going to tell me it's not
| worth your time to frigging walk to 5 banks and open
| accounts to make sure that money is safely stored?
|
| For something you can't afford to lose, you sure fon't
| seem to be treating it that way.
| baq wrote:
| There should be a checkbox somewhere in your bank to put
| your money in multiple CDs in multiple banks
| transparently for you.
| peter422 wrote:
| ... that's what banks do, they just do it at scale. So
| you want every person to be their own bank?
|
| Why not just let the FDIC do their job, trust in the
| banking system and save yourself the trouble of worrying
| about a bank run.
| baq wrote:
| If you're small enough to get fully covered by all means
| please do, I agree 100%.
| nullc wrote:
| Interactive brokers does this, you can configure it with
| which of their fleet of banks you already have accounts
| at so you don't undermine its logic.
| belter wrote:
| > When was the last time you went over their deposit base
| and asset allocation?
|
| A few times but only for a short time and a small
| percentage of the capital. Was already a full grown adult
| in 2008, have good memory, and are still licking many old
| lion financial battle scars...
| JJMcJ wrote:
| It wasn't risky as long as prime rate stayed super low.
|
| But that rate has been creeping up for months now.
|
| SVB was too small to qualify for risk assessment under the
| revised banking rules. So they could get away with money in
| volatile securities that were very interest rate sensitive.
|
| That said, SVB seemed very solid until Thursday morning.
| salawat wrote:
| Only because people weren't asking the right questions.
|
| It's like driving into a parking structure and seeing
| exposed rebar. It might still be standing now; but if
| you're smart, you need to find somewhere else to park.
| Cthulhu_ wrote:
| Would it have been better if the rate increases were
| further apart and there were strong declarations of
| intent?
| tome wrote:
| > It wasn't risky as long as prime rate stayed super low.
|
| That sounds a bit like "it's not risky to driver a motor
| vehicle as long as you don't get into an accident".
| JJMcJ wrote:
| That's true. The real risk was in imagining that the
| interest rates would stay super-low forever.
| chiefalchemist wrote:
| To clarify, SVB's problems are the result of The Fed's
| change in direction. It just takes a while to see the
| affects of those decisions.
| salawat wrote:
| SVB's problems were the result of glutting on long
| maturation bonds instead of bills.
| dmix wrote:
| You think consumer banking is lightly regulated?
|
| Or that VC should have their risk controls? Only
| conservative old school bankers should invest in startups?
| Or what exactly?
| belter wrote:
| No. Due to the previous crisis, is one part very well
| regulated. Here is what should happen...The emphasis
| below on unlikely is mine...
|
| "A: In the _unlikely_ event of a bank failure, the FDIC
| responds in two capacities. "
|
| "First, as the insurer of the bank's deposits, the FDIC
| pays insurance to depositors up to the insurance limit.
| Historically, the FDIC pays insurance within a few days
| after a bank closing, usually the next business day, by
| either 1) providing each depositor with a new account at
| another insured bank in an amount equal to the insured
| balance of their account at the failed bank, or 2)
| issuing a check to each depositor for the insured balance
| of their account at the failed bank....
|
| ...In some cases--for example, deposits that exceed
| $250,000 and are linked to trust documents or deposits
| established by a third-party broker--the FDIC may need
| additional time to determine the amount of deposit
| insurance coverage and may request supplemental
| information from the depositor in order to complete the
| insurance determination..."
|
| "Second, as the receiver of the failed bank, the FDIC
| assumes the task of selling/collecting the assets of the
| failed bank and settling its debts, including claims for
| deposits in excess of the insured limit. If a depositor
| has uninsured funds (i.e., funds above the insured
| limit), they may recover some portion of their uninsured
| funds from the proceeds from the sale of failed bank
| assets. However, it can take several years to sell off
| the assets of a failed bank. As assets are sold,
| depositors who had uninsured funds usually receive
| periodic payments (on a pro-rata "cents on the dollar"
| basis) on their remaining claim."
|
| "Deposit Insurance FAQs" -
| https://www.fdic.gov/resources/deposit-insurance/faq/
| kemiller wrote:
| Many were restricted by covenant with their investors to
| only use SVB.
| grugagag wrote:
| Id like to hear more about that.
| roflyear wrote:
| I've heard it was mostly they had credit agreements with
| svb that required them to bank exclusively with svb
| eternalban wrote:
| Is this correct then? : SVP gives easy credit to VC
| friends. VC friends use that credit as investment in
| startups who are told they must use SVP. So money moves
| from magic-money-printer -> SVP -> VC -> Startup -> SVP.
| Then SVP takes those deposits and invests it elsewhere.
| Now they are making money from loan to VC and
| reinvestment of those same monies that are deposited
| back.
|
| So a bank like SVP seems designed to enable VCs with easy
| credit to _de-facto control_ an important (and balooning)
| niche of the economy and by their control over the beauty
| pageant of which startup idea gets money (and PR) they
| also control _what kind of technology becomes dominant_.
| (For example, these VCs share significant credit /blame
| for creating the surveillance tech. They share blame for
| creating an engineering culture that must serve full
| throttle growth business models. etc.)
|
| Is there a social graph of SVP and VCs involved? Are
| these people pals, friends, "effective" ideologues, etc.?
| roflyear wrote:
| > VC friends use that credit as investment in startups
| who are told they must use SVP.
|
| Maybe, but I was talking specifically about startups
| themselves being given loans by SVB then requiring the
| startup to bank there. But I am sure investors also
| pushed startups to SVB... if your investor (who maybe is
| highly invested in SVB ... ) says "you should use this
| bank" are you going to say no? The pressure is immense.
|
| > Is there a social graph of SVP and VCs involved? Are
| these people pals, friends, "effective" ideologues, etc.?
|
| I'd be more surprised if they weren't.
| belter wrote:
| That social graph is the definition of the VC ecosystem.
| belter wrote:
| Because it was providing loans to the VCs and they saw it
| convenient, to force their startups there. High risk for
| High reward...
|
| "The rise and stunning fall of Silicon Valley Bank" -
| https://www.axios.com/2023/03/11/silicon-valley-bank-rip
| [deleted]
| shadowgovt wrote:
| Over 50% of startups fail. If you factor in acquisitions as
| failures, the number is closer to 90%.
|
| HN has been around awhile and has been a hotbed of the same
| starry-eyed startup dream for a couple generations of young
| people getting on the carousel now, so I guess I'm not
| terribly surprised if the attitude "welcome to the club, we
| would print you a t-shirt but our printer startup went out of
| business" shows up around these parts from the folk who have
| been on the ride awhile.
|
| There are a lot of folks who read HN who had their dream
| crushed for a lot stupider reasons.
|
| ETA: that is something I'd like to see more of here though.
| There's a lot of folks who have been through a bust cycle and
| survived it and even stayed in the industry. What kept you
| going? How did you come out the other side? Was it as scary
| as it feels when you haven't done it before?
| [deleted]
| nullc wrote:
| almost every online discussion these days seems to get filled
| with bloodthirsty people, HN is no exception.
| balves wrote:
| I wonder how much of this saltiness -- both on HN, reddit,
| and mainstream media -- is due solely to the name of the
| bank.
|
| If the headline was "California Regional Mutual Bank and
| Trust fails" (I made up the name, I don't know anything about
| banking, don't nitpick the terms) it surely would have still
| been newsworthy because of the size of the bank, but I
| suspect there would be less vitriol around the situation with
| the Silicon Valley connotation removed from it.
| lambo4bkfast wrote:
| I agree there are a lot of poorly thought out populist
| arguments for not making depositors whole. I for one prefer
| HN to not converge into another social forum like Reddit that
| has a lack of critical thinking in discussions.
| roflyear wrote:
| I think I lean towards you, but what people are actually
| suggesting is that these startups shouldn't be bailed out
| when they went with a bank with super-high promised rates,
| while they of course knew their deposits over $250k were
| uninsured.
| tsunamifury wrote:
| They haven't lost the money yet. Read and understand before
| you comment. The banks assets lost 10-20% value not 100%
| roflyear wrote:
| That's very rude. I haven't implied they lost money, to
| start, and 80% today or this week is much different than
| 80% in months.
| jurassic wrote:
| I haven't heard anything about high rates being the primary
| thing drawing people to SVB. The trap seems to have been
| giving startups access to credit that other banks would not
| provide, but only if you agree to do all your banking with
| SVB. That, and also several big VCs that required their
| portfolio companies to bank there. These things are what
| herded everyone into the building before it caught fire.
| roflyear wrote:
| I agree and have heard the same as you have, but SVB's
| website still does say a 4.5% yield. So the yields were
| quite attractive.
| WanderPanda wrote:
| If your startup doesn't survive having only 50% in the bank
| account for one week and then 80-90% in the following weeks
| (appears to be the most likely outcome without any government
| money) it likely isn't viable to begin with (in a normal,
| non-zero interest environment). I think the believe that
| startups have to always be on the brink of bankruptcy is
| misleading because it worked in the last decade of endless
| money and in winner-take all industries. At this point I
| believe that "Blitzscaling" is a zero-sum game and that most
| value is created by non winner-takes all companies that grow
| steadily. It seems analogous to aerodynamic friction, the
| faster you try to go the less far you will be able to go with
| a certain amount of energy/money
| hedora wrote:
| This is a strange strawman argument. The GP and parent
| comment you responded to are specifically referring to this
| sentiment:
|
| > _"Depositors shouldn't get anything beyond the insured
| $250,000"._
|
| What startup normally only has $500,000 in the bank?
|
| Anyway, cashflow can matter a lot. For instance, people
| that sell stuff on etsy might not be paid on time because
| of this. That creates a lot of customer uncertainty.
|
| Also, I can imagine a lot of B2B startup customers are
| looking for second sources all of a sudden.
| flappyeagle wrote:
| The person you're replying to is referring to a well-
| founded rumor that depositors will receive 50% of the
| uninsured deposits beyond the 250k minimum this coming
| week and that SVB has assets worth at least 80% of all
| deposits, which will be recovered in time.
| iancmceachern wrote:
| The issue is it wasn't pension money. It was VC money, that's
| money intentionally being gambled in high risk endeavors.
| It's not right for thr tax payers to bail out rich VCs who
| gambles their money.
|
| On the flip side, I also have worked in startups much of my
| career, and think I and people like me should be paid for our
| work. I think we should help the startups out, bail them out,
| but without helping the VCs. I think what that means is the
| startups effected should get their money back, but the VC
| owned shares of the company then become government assets
| that can be sold in the future to offset the cost of the
| buyout.
|
| It's simply not right for government money to bail them out,
| but fornthe VCs to profit from it years from now.
|
| Edited to add: In the end the point I'm trying to make is
| that it's not right for us to take money from average non-
| rich Americans to pay back VCs (rich americans) who gambled
| their money. If the bailout comes from people that earn more
| than 500k a year exclusively then I'm all for it. But taking
| public money that was taken from a single mom who is barely
| getting by to do so is wrong.
| dehrmann wrote:
| > The issue is it wasn't pension money. It was VC money...
|
| You're going to shit yourself when you learn who some of
| the LPs are.
| iancmceachern wrote:
| What is an LP?
| ekidd wrote:
| "Limited partner", someone who invests in a partnership
| without having day-to-day management control (IIRC). In
| the case of VCs, many of the limited partners are pension
| funds or other giant players who want to invest a small
| fraction of their assets in higher-risk, higher return
| securities. (The LPs probably have other assets invested
| in lower-risk, lower-return assets.)
| nerdponx wrote:
| That's just spiteful. I would rather keep the startups in
| business than punish the VCs by making them lose money on
| their current investments.
| iancmceachern wrote:
| The VCs caused the run on the bank is what I'm reading.
| wslh wrote:
| > It was VC money, that's money intentionally being gambled
| in high risk endeavors.
|
| The high risk endeavor does not have anything to do with
| the bank where you deposit the money raised. Here, it does
| not matter if the source of money is a VC or another.
| iancmceachern wrote:
| It does. SVB is preferred by startups because they do
| things that other banks won't, riskier things. It's not
| the same as any old bank.
| thomasingalls wrote:
| This is a foolish take, because it ignores the thousands
| of workers who distinctly aren't high rollers. It's hard
| for me to see the moral difference between 'public
| workers pension fund' and 'workers trying to feed their
| families, who happen to work at a startup'
| iancmceachern wrote:
| I also work at a startup. I have for much of my career.
|
| I said in my OP that my view is that the startups
| themselves should be bailed out, saving jobs like yours
| and mine. The VCs should then forfeit their shares to the
| US govt, to be sold later, to offset the costs of the
| bailout.
| hgsgm wrote:
| They could have deposited the funds at a bank that
| charged a fee to hold it instead of FTXing it.
| wslh wrote:
| You cannot compare the regulation aspects of a bank to
| FTX, and the crime behind it.
| gruez wrote:
| > The issue is it wasn't pension money. It was VC money,
| that's money intentionally being gambled in high risk
| endeavors. It's not right for thr tax payers to bail out
| rich VCs who gambles their money.
|
| Putting your startup's funds in a FDIC insured bank isn't
| exactly "gambling".
| iancmceachern wrote:
| It is if you have funds over the FDIC limit. There are
| services that take care of that for you, there are many
| standard practices that exist to protect against this,
| all were ignored.
| MrMan wrote:
| the depositors shouldn't get paid beyond what remains of the
| assets of the bank!!!
| duxup wrote:
| > I'm pretty baffled to see so much of this on HN.
|
| HN comment quality, thoughtfulness, and etc seems to drop off
| with higher visibility.... and sadly generally too.
|
| The more visible the more comments resemble Reddit or the god
| awful knee jerk hot takes you get in local newspaper comment
| sections :(
|
| It's a bummer as I've enjoyed the generally high comment
| quality on HN for a long time.
| brankoB wrote:
| The parent comment was fine, it just sounds like you're
| upset about what they said rather than how they said it.
| idopmstuff wrote:
| I agree with you on this, but I'm thinking more as a matter
| of perspective. HN is just not a place where I expect to
| see vicious, anti-tech backlash given the demographics.
| duxup wrote:
| I agree with your specific example as well.
|
| I think the demographics are changing, more so in higher
| visibility articles, but generally too.
|
| I think the best part about HN has always been the
| comments discipline. People generally only respond when
| they have some knowledge (not just "I watched a YouTube
| video).
|
| That has faded sadly.
| norwalkbear wrote:
| It's because tech has become synonymous with woke
| blululu wrote:
| Except among left wing circles where tech has become
| synonymous with fascist. Most of the people I've seen
| calling for depositors to lose everything are leftwing of
| the woke variety. Of course both right and left seem to
| ignore that bailing out a bank and backing up depositors
| are really very different policies an different issues.
| pbourke wrote:
| Perhaps it's an anti-SV backlash? Seems misguided as a
| lot of the places that you'll want to work at 5-10 years
| from now are probably depositors at SVB. I think we all
| have an interest in a trustworthy financial system so
| rooting for depositors to get wiped out seems
| particularly short sighted.
| plonk wrote:
| Maybe @dang could accept monthly donations to pay for a
| couple moderators? Last I heard they were volunteers.
|
| Anyway, the fact that the top-voted comment now complains
| about the low quality of answers shows that moderation +
| voting still help.
| curtisblaine wrote:
| From the fact that, if money for bail out comes from
| taxpayers' pockets, they don't want to be the ones to
| ultimately pay for this.
| phs318u wrote:
| > just because of their choice of financial institution
|
| There's a moral hazard to all choices made in business.
| Making a choice based on insufficient due diligence is a
| hazard. Chasing higher rewards at higher risk is a hazard.
| Are you saying the government should indemnify businesses for
| their choices?
|
| My understanding is that SVB avoided some restrictions placed
| on other banks. It's not clear to me the why's and wherefor's
| of this but there are only two options. Either malfeasance on
| the part of SVB, or ignorance/risk-taking on the part of the
| customers.
|
| The scahdenfreude I believe comes because it's assumed many
| customers would be from the "this time it's different" school
| of business, in which case there's a lesson akin to caveat
| emptor begging to be learnt.
| handsclean wrote:
| It comes from the way lower class Americans are treated. The
| hardship that _might_ be ahead for some otherwise extremely
| rich and privileged people is actually far less than befalls
| tens of millions of lower class Americans every single day,
| and choosing a "move fast and break things" bank is actually
| a far less "unfair" reason than, say, the circumstances of
| your birth. The vicious, lifelong message from mainstream
| society to those most in need has always been "nobody owes
| anybody anything, that would be socialism". That's why those
| people are angry to see people far better off receive help
| just because "not doing it would be unfair and hurt them".
| tptacek wrote:
| Very little of these discussions have anything to do with
| serious policy debate. They're a prism through which the
| whole site+ filters their preexisting beliefs about venture
| capital and the startup industry. When you internalize that,
| it's much easier to look at an 800-comment third- or fourth-
| order HN thread about SVB and just nope out. There are no
| stakes to these threads. They're just here because the
| community needs to vent its reaction to the news and its
| valence.
|
| + _(50% of which is outside the of the US, and a majority of
| which is people who don 't work for "big tech", which
| ironically isn't much at all directly impacted by SVB)_
| truthwhisperer wrote:
| [dead]
| shrimpx wrote:
| It's more subtle, because these startups exist due to VC
| investment. Those VCs probably recommended and even set up
| their portfolio startups with SVB accounts. And a high
| percentage of these companies were heading to failure due to
| the nature of these ventures. I'm not so sure taxpayers
| should be responsible here.
|
| Why don't VCs double down and make their investees whole?
| They're the ones who bankroll and believe in these ideas, and
| stand to make 1000x profits in their successful exits.
| sangnoir wrote:
| > People here are effectively suggesting that I shouldn't get
| my paycheck and that the company I work for should lose most
| of its money because our CEO used a well-reputed bank?
|
| _I_ am suggesting that your CEO not adequately insuring the
| companies bank deposit is negligent. If your CEO does not
| insure your HQ against fire, and it burns down, should it be
| bailed out by the government just so that you 're not out of
| a job? Or is it not their fault that the CEO didn't use a
| "well-reputed landlord with adequate fire suppression?"
| reilly3000 wrote:
| >I just don't get where that comes from.
|
| YEARS of disinformation about "Personal Responsibility" and
| not a lot of critical thinking in the interim. I'm not
| specifically talking about the parent comment.
|
| Your point is sound and seems obvious to me. I also spent
| several years studying and fighting coordinated inauthentic
| content its effects on the brain. Whether coordinated or not,
| hearing the same message over and over again gets
| internalized such that it becomes reflexive to parrot.
|
| What happens when you give every single high school senior
| $1000 scholarship to read Ayn Rand? What happens in a society
| when hyper-capitalists, their politicians, and their media
| narratives leave no room to consider things that are
| beautiful and human? What happens when STEM education starves
| all of the humanities of oxygen?
|
| If it isn't this, I don't know what it is, but we're all
| about to find out.
| foobiekr wrote:
| The problem is that the valley culture wants it both ways. It
| is a largely libertarian, rules-breaking environment. They
| want to ignore laws and decry regulations while at the same
| time having the government step in and bail them out whenever
| anything goes against them.
|
| I, too, have worked for startups much of my life. Sometimes
| you show up for work one day and the doors are locked because
| the place is done. It is part of the deal. There are lots of
| reasons this can occur - hey, we just couldn't close another
| round, the economy hit a speed bump, etc. 2008 happened.
| Worldcom and Cable and Wireless just declared bankruptcy and
| they were our lead customers. etc. It is part of the startup
| cycle.
|
| If something like this this had managed to kill AirBnb, Uber
| and Lyft before they did the damage they did, the world would
| be better off.
| rqtwteye wrote:
| I think the backlash against tech comes from many years of
| tech celebrating themselves and being celebrated as
| "disrupters" for a lot of bullshit startups. And the amounts
| of money made with companies hat have no real business is
| just astonishing. It would be nice if it went back to
| focusing on creating sustainable businesses that make useful
| products that benefit their users and aren't just another
| vehicle for mass surveillance.
| hgsgm wrote:
| > And the amounts of money made with companies hat have no
| real business is just astonishing.
|
| Maybe they wasted investor money on salaries. Oh no! And
| certainly no reason to steal the money they _didn 't_
| waste.
| dpweb wrote:
| It's from the hubris and excesses of recent SV culture.
|
| And most Americans have no conception of being able to have
| 250k in a checking account.
|
| The vengeance attitude can be taken too far however but as
| depositors are ultimately made 80-100% whole seems a
| reasonable outcome.
|
| Bottom line uninsured means uninsured. Read your contracts.
| Although shouldn't be angry if they can be made whole.
| hgsgm wrote:
| Most Americans work for a company that does in fact have
| $250K in a checking account like SVB...
| prewett wrote:
| GP's point was that they have no _conception_ of that, so
| it affects how they think about things, and their
| proposed solutions. The fact that the situation they have
| no conception of happens frequently, even near them,
| means that their proposed solutions are likely to be
| inapplicable.
| kortilla wrote:
| I think that sentiment is directed against a strawman that
| doesn't really exist. The reality is that startups with "no
| real business" just fail after burning through investor
| cash and nobody gets anything.
| deepGem wrote:
| People in general who are not good at something or didn't
| find success in that field, in order to feel their salt's
| worth have 2 options - either build something that's far
| greater than what they are not good at, or disparage what
| they you are not good at. The latter is a lot easier.
| [deleted]
| closeparen wrote:
| This is confused in many ways. The only people who care
| about "mass surveillance" are tech insiders. It's
| incoherent to be mad about fake business models and too
| much money being made at the same time - if startups are
| stupid then VCs are losing their shirts (and if we hate
| them, then we should help them do it even bigger and
| faster). If Silicon Valley is an engine of runaway wealth
| inequality then objectively speaking, the business model
| works. Making things people want generates profit, which is
| always and inherently evil according to communists, and
| enriches investors/executives/employees faster than the
| average person, which according to anyone who is committed
| to "income inequality is bad" also makes the world worse.
| epistasis wrote:
| I think this mostly comes from the PayPal mafia sort of
| attitude: libertarian when it helps me, bail me out when it
| helps me, start a bank run when it helps me.
|
| There was a time when tech did seem like a better business
| movement. Certainly better than the financial sectors, or
| heavy industry, or pharma. But then we let Thiel and Musk
| become the face, with Sachs and Calacsnais (or however you
| spell his name) become their media toadies, and we got
| fucked on the PR front.
|
| We need to reject these guys a bit harder. Thiel's bank run
| was unnecessary. He should have picked up the phone and got
| the numbers from SVB instead of destroying an institution
| that's so helpful for small founders. Founders are now more
| dependent on Thiel and his ilk, and less independent.
| flappyeagle wrote:
| > or however you spell his name
|
| Sacks is spelled with a CK.
| startupsfail wrote:
| Yes, it seems that the antisocial defectors are going to
| win in the short term and may have more power in the long
| term. Any suggestions onto how to inject some discipline
| and long-term thinking into this?
| dumpsterlid wrote:
| Having more people with leftwing/progressive politics
| involved and less libertarians would help.
| epistasis wrote:
| There aren't that many libertarians in tech compared to
| other areas, in my experience.
|
| The difference is that some of the libertarians are very
| noisy about their politics, whereas most people in tech
| don't make that much public noise about politics.
|
| When you combine that dynamic with The NY Times deciding
| that it has to denigrate tech as an industry and take it
| down a few pegs (a literal mandate from their editors!),
| the jerks gain prominence, and tech looks the worse for
| it. And I would say that the PayPal mafia's sins aren't
| so much being libertarian as just being awful people that
| are super easy to hate. For example, musk calling that
| one guy a pedo, or taking pleasure in firing people.
|
| This assholery has now become synonymous with tech, but
| it is completely counter to my experiences in tech, but
| maybe I've just been lucky.
| hgsgm wrote:
| Money tends to make people into (faux) libertarians.
| epistasis wrote:
| I am not smart enough to have a full solution, but I
| think part of it must include some honest examination of
| all the players here, including the big ones whose mere
| opposition has a chance of crushing new founders. So a
| lot of that has to come from other established players in
| the space. Maybe being a little bit less eager to hop on
| to rounds led by these folks. Use soft power at a
| minimum.
|
| But what do I know, I'm just a nobody in the space!
| Others who have more power, wealth, and wisdom will be
| able to handle this better. (And I should point out that
| I don't absolve SVB of their errors here either, it's
| just that I think their errors are more about
| miscommunication about a bad situation of their own doing
| that had a clear solution ).
| gWPVhyxPHqvk wrote:
| There's another layer to this: many of these bullshit
| startups are in crypto, which spent the past 5+ years
| undermining trust in centralized banking and the Fed. Now
| this world is crying out for a bailout. It's just so rich.
| Like why would I want to support a16z's businesses in a
| time like this?
| [deleted]
| beebmam wrote:
| Simply put, I think this kind of attitude is based in
| economic resentment. There's a whole part of the US that
| hasn't seen much benefit from the unbelievably successful
| startup world.
|
| I remember when people used to go build something useful
| themselves instead of complaining about the success of
| others. Why don't we try to get back to that kind of
| culture?
| kortilla wrote:
| Because it's a heck of a lot easier to do nothing and
| complain about people who do "try hard".
| gbcfghhjj wrote:
| It's more than not seeing a benefit, there's many parts
| of the US where people rightly or wrongly blame tech
| salaries plus remote work for pricing them out of being
| able to afford a home and other basic life necessities.
| Of course the situation is more nuanced than that in
| reality but tech workers have a tendency to show up in
| once reasonably priced areas, buy up houses for cash and
| drive around in fancy luxury cars, which doesn't help the
| perception. There's also a perception that much of this
| money is coming via proximity to wealthy financiers and
| 15 years of ZIRP rather than true hard work.
| bobthepanda wrote:
| also, a lot of them pooh-poohing the need for regulations
| because it interferes with their risky startup work.
|
| It turns out, you can experience the downside of risk.
| Zetice wrote:
| That's an insane argument to make while using the tech that
| came from SV to make it.
|
| "Sustainable" businesses are not how American economy
| differentiates itself in the world, what you're asking for
| is to crush the way of life yourself used to in America, to
| make your own life substantially worse.
|
| It's nonsensical, bitter, and petty. If that's the argument
| you want to make, grow up.
| whimsicalism wrote:
| I think it has to do with Nietzschean slave morality and a
| media angered by losing advertising revenue to strong
| competitors.
|
| The media is literally competitor in the attention economy,
| of course they will attack their biggest foes.
| kelseyfrog wrote:
| Nietzsche over Marx, really? Why skip?
| larksimian wrote:
| You're begging for money from the government to
| compensate you for your own personal failures. I think
| you need to re-read your Nietzsche if you think this
| makes the people saying no to that corrupted by
| ressentiment.
|
| They're just trying to help you overcome your shackles of
| dependence on the sweet teat of Uncle Sam. Get some
| bootstraps and climb out of this hole on your own merit!
| shredprez wrote:
| Plenty of startups fit that bill and will nonetheless be
| impacted by SVB's failure, while the most pointless
| businesses surf by on their founders' access to inherited
| wealth and political power. Any revenge on them will be
| short-lived and will have serious, lasting consequences for
| middle class workers throughout the industry. For anyone
| reading this who doesn't already know: startups aren't all
| snotty trust fund kids making $300k+ selling AI deodorant
| on the blockchain.
|
| As I said on another post this weekend, I'll remember the
| comments I'm reading here for the rest of my life.
| sanderjd wrote:
| Just keep in mind that miserable jerks are naturally more
| inclined to be noisy. This is showing up on both sides of
| this debate. There's these miserable jerk VCs noisily
| demanding tax funded bailouts to preserve some of their
| wealth that is at risk. And there are the miserable jerks
| you're talking about on the other side who claim to want
| to see a bunch of peoples' livelihoods put at risk.
|
| But those people are just a noisy minority. Most people
| are quietly somewhere else on the continuum between those
| extremes.
| shadowgovt wrote:
| No, but the median salary for a software engineer is
| still 120k, a little under double the median salary
| across all industries.
|
| It's hard to dredge up deep, deep wells of sympathy for
| folks who were already playing the salary game at double
| the value of half the players. One can't escape the sense
| that if they've done the kind of budgeting that a regular
| American does, they will be fine.
| datavirtue wrote:
| Regular Americans spend every dime that comes in.
| wpietri wrote:
| Especially for the startup end of things, where we are
| aiming to disrupt other businesses.
|
| Should we have a strong safety net, so that people who
| lose their jobs due to market disruptions or executive
| mismanagement do not suffer? Absolutely. And if it's
| currently inadequate, by all means let's improve it.
|
| But I think it's wrong to try to protect jobs through
| government subsidies to industries where execs made bad
| choices. Which is exactly what a lot of people are
| apparently asking for when they're asking for depositors
| to get retroactive free deposit insurance here.
| shadowgovt wrote:
| It is possible that it'll make some kind of realpolitik
| sense to stabilize the startup scene, but I sort of doubt
| it. During the housing crisis, the federal government
| bought up sufficient stock to stabilize American auto
| manufacturing not because they particularly cared about
| the jobs that would be lost or the ecosystem of
| supporting industries that would be damaged as a result
| of loss of major manufacturing, but because auto
| manufacturing is one of America's national security
| concerns... The factories and skill sets that create
| trucks can create APCs, jeeps, and tanks if a hot war
| breaks out.
|
| I'm not exactly sure off the top of my head what the
| similar defense necessity story is for Silicon Valley.
| epvgwwqe wrote:
| Are you for real? There is an AI arms race with China,
| for one. There is critical innovation across all segments
| happening in Silicon Valley, including defense.
| shadowgovt wrote:
| That would be a good argument for bailing out a Raytheon
| or a Microsoft, companies that have a record of success
| in delivering on complicated software technologies, but
| not the average Silicon Valley startup.
| epvgwwqe wrote:
| You can't throw the baby out with the bathwater. If the
| entire ecosystem is hurt it will affect the next
| Raytheon/Microsoft as well.
| wpietri wrote:
| Agreed. Especially for the bits of it that are at risk
| here, which are mainly small, unprofitable players.
| closeparen wrote:
| We can absolutely be a society in which checking accounts
| are a pit of snakes which must be navigated by executive
| savvy and wit. It's just going to be a much poorer one.
| The point is not to "protect jobs in Silicon Valley" per
| se, it is to maintain banking infrastructure as the sort
| of thing that just works (or gets urgently fixed) so that
| the entire economy can continue to rely on it, vs.
| entering a lower-trust regime where a checking account
| may as well be a stock portfolio.
| wpietri wrote:
| The FDIC already exists to make sure checking accounts
| aren't a pit of snakes for 99% of the population. The
| entire economy can continue to rely on it just as it
| always has.
|
| Does this mean that rich people have to be more careful
| managing gobs of cash? Yes, but that has always been the
| case. Treasury management is a thing that exists both as
| a thing people do professionally and as a service you can
| buy.
|
| I understand that some people are young enough that they
| have either not heard about bank failures or did not feel
| like it applied to them due to being in a period that was
| very good for banks. But they are and they do:
| https://www.fdic.gov/bank/historical/bank/
| closeparen wrote:
| You mean, personal savers and very small businesses can
| continue to rely on the banking system. That's not 99% of
| the economy.
|
| Young people hear plenty about bank failures -
| specifically as a success story for big government, a
| problem we solved, such that depositors are secure these
| days.
|
| I recognize that startups are in a bit of a weird place
| where they might have a lot of money to manage before
| they are sophisticated enough to have a big finance team.
| If only there were some sort of entity specialized in
| dealing with their unique needs... oh wait.
| wpietri wrote:
| Yes, that's why I said "99% of the population", not "99%
| of the economy".
|
| But the economy's _also_ going to be fine here. Most
| businesses with a lot of money understand that bank
| failure risk is just one of the many financial risks to
| manage. To the extent a startup wants to have millions of
| dollars but not hire somebody competent to manage that
| money, them 's the breaks.
|
| The same thing would be true for startups that don't take
| security seriously, for example. I feel bad for the
| founders here, but no worse than I would for one who
| experienced hackers getting in and stealing the data.
| Even if they had hired "sort of entity specialized in
| dealing with their" security needs. Picking a bad vendor
| happens, and if you bet your company on a vendor choice
| in a vital area, well, sometimes those bets don't come
| out like you hoped.
| closeparen wrote:
| > Most businesses with a lot of money understand that
| bank failure risk is just one of the many financial risks
| to manage.
|
| This is a poorer world than the one where it's not, is my
| point.
|
| What are you even supposed to do here, open accounts at
| 40 different banks when you get a $10 million check?
| That's pointless silliness. Is this really what we want
| entrepreneurs to be spending their time on?
| wpietri wrote:
| Oh no! A person with $10m in cash might have to put forth
| a little effort to take care of a vast amount of money!
| Such horrors have rarely been contemplated.
|
| I understand that some see startup founders as delicate
| smol beans who are too uwu soft to have to actually do
| some work. But I have been told repeatedly that these
| people are genius future titans of industry, backed by
| the most financially savvy people on the planet. So I
| think maybe they can handle it?
|
| If somebody is in the incredibly privileged position of
| being handed $10m in one go, but is also uninterested in
| managing the money, then I would expect them to hire a
| part-time CFO. Or at the very least to split the money up
| and put it into two different banks, which in this case
| would have resulted in no payroll disruption and the
| safety of 90-100% of their money.
| closeparen wrote:
| It is totally possible to have an economy and public
| policy based on seething contempt for entrepreneurs. It's
| probably the case that a majority of voters would prefer
| to be a little worse off as long as the tech-bros they
| hate are a lot worse off. I just think this is an ugly,
| self-defeating basis on which to run a society.
|
| >which in this case would have resulted in no payroll
| disruption and the safety of 90-100% of their money.
|
| Why would it have resulted in that? We've already
| established that any amount above $250k in one bank may
| as as well be vaporized already, you just don't know it
| yet.
| wpietri wrote:
| I am an entrepreneur from a family of entrepreneurs. I
| have started multiple companies, one of which was venture
| backed. I like entrepreneurs just fine, so peddle that
| nonsense elsewhere.
|
| > Why would it have resulted in that?
|
| Because our modern regulatory regime is pretty good.
|
| If you have your money in two bank accounts and have
| reasonable capital reserves, you'll be able to make
| payroll from one of them. So the short-term problem is
| solved. In your example, you've got $5m to work with.
|
| For the failed bank, the FDIC will give you $250k right
| away, and in short order a large percentage gets paid out
| as they liquidate assets. For SVB, that starts within a
| week: https://www.fdic.gov/resources/resolutions/bank-
| failures/fai...
|
| The expectations I'm seeing for that are on the order of
| 50%. So a week later, you're back up to $7.75 million to
| work with, with more to come in as assets are sold. Maybe
| you get everything back, maybe you take a haircut. The
| estimates I'm seeing are in the 0-20% range, so you end
| up with $9-10 million back over time.
|
| And that's just the FDIC. Functioning businesses have
| income that they can use to pay salaries or as
| justification for loans or selling equity. They can also
| pursue acquisition by somebody who was lucky or smart
| enough not to have high egg/basket ratios.
|
| So in the end, maybe we end up with a few failed
| companies, but it's not a systemic risk, and it's the
| sort of object lesson that helps people understand why
| they need to take cash management seriously beyond a
| certain level. That surely will suck for some people, but
| that's how capitalism works.
| sleepybrett wrote:
| > Because our modern regulatory regime is pretty good.
|
| It really isn't. The republican party has spent the last
| 50 years dismantling regulation. Thats why shit like this
| happens.
| sanderjd wrote:
| I feel like you're conflating "a person" with businesses,
| who have a number of people downstream of their bank
| accounts. They really aren't very similar to wealthy
| individuals with large bank accounts.
|
| Having said that, as I've been reading about this for the
| first time over the past couple days, I have become a bit
| less sympathetic to companies with very large deposits at
| a single bank. It does seem that there are mechanisms,
| like "insured cash sweep", that good financial officers
| should have been taking advantage of. But I still have
| uncertainty about this and want to read more about it.
|
| But I think the general point of the other commenter in
| this thread is a good one: a company with, say $2M to
| $10M in cash deposits should ideally be able to access
| banking services easily and with negligible risk. This is
| not an enormous business size! It's better for society
| for it to be possible to run businesses like that without
| having to fear big surprises in the financial system
| killing you on a random Friday.
| wpietri wrote:
| The "person" here is the founding CEO with a $10m check I
| was being asked to have empathy for. To the extent that
| we are instead talking about proper businesses, you have
| a point, but I have a different response. A real business
| that just keeps $10m in cash sitting around in one spot
| like some teen's first checking account is grossly
| lacking in treasury management.
|
| > should ideally
|
| Sure. Ideally, we should all live in the Big Rock Candy
| Mountains. [1] But back here in reality, companies have
| to manage all sorts of risks. If they don't want to hire
| a professional finance person and don't want to avail
| themselves of services that solve their problems, then
| that is a choice they can make. It's just not the
| taxpayer's job to kiss their boo-boos and make it all
| better when their gamble doesn't turn out so well.
|
| [1] https://en.wikipedia.org/wiki/The_Big_Rock_Candy_Moun
| tains
| dralley wrote:
| > Especially for the startup end of things, where we are
| aiming to disrupt other businesses.
|
| By lighting large piles of nearly-free Saudi money on
| fire to undercut sustainable businesses on price.
| x0x0 wrote:
| Framed another way, we're asking for the government to
| take some ownership of their stewardship of banks. The
| Treasury, the Fed, the CA gov, and the ratings agencies
| all gave svb passing grades. svb appears not to have done
| crypto speculation.
|
| The svb ceo asked congress to weaken Dodd-Frank. If
| that's a bad idea, then congress should say no; that's
| their job.
|
| Apparently banking over trivial amounts of money ($250k
| isn't even one month's cash use -- ie payroll and health
| insurance -- for a 15-ish person sfbay company) requiring
| significant work to make that cash unlikely to just
| disappear is no way to run a country.
| wpietri wrote:
| The cash was always unlikely to disappear. It's just that
| even unlikely things happen sometimes.
|
| If doing decent treasury management is too darned hard
| for rich people to do, I don't think that's a problem for
| the government to manage. Beyond the obvious expedient of
| using two or three banks, which would have solved most
| problems for most companies here, there are a number of
| obvious market-driven solutions. E.g.,
| https://www.difxs.com/ or
| https://www.g2.com/categories/treasury-management
| x0x0 wrote:
| > _too darned hard for rich people to do_
|
| Yeah, this is some ideologically driven smearing of
| people who are literally like I want to stick my seed
| round in a checking account and not have that disappear.
| For what it's worth, I'm not rich; I'm like a hundred-
| thousandaire. (And not affected, though friends are.)
|
| Disappointing to see someone like you gloating that a
| bank screwed a bunch of small business customers. From
| reading your writing, I doubt you'd cosign "basic
| economic services like a checking account are use at your
| own risk" in almost any other area.
| wpietri wrote:
| Ah yes, my crazy ideology of "people should generally
| experience the consequences of their actions, especially
| when they're doing very well".
|
| I get that you want to be able to be handed millions of
| dollars and have somebody else take care of that for you.
| Who doesn't want that? I just don't understand why you
| think it's the job of poorer people to subsidize you if
| you take a risk with those millions and it doesn't pan
| out.
|
| > "basic economic services like a checking account are
| use at your own risk"
|
| I in fact don't cosign that; I've been very clear that I
| support mandatory FDIC insurance with its current very
| generous limit. I also support the FDIC's resolution
| process where they immediately pay out the $250k and then
| work hard to quickly pay a large portion of the
| remainder. That's a giant level of risk reduction.
|
| But if somebody is rich enough that they have millions in
| cash and haven't bothered to take basic precautions like
| "use two banks", I don't think that's a problem such that
| (much poorer) taxpayers should be obliged to make it all
| better. If it happened to a friend I would feel bad for
| them personally, of course. But not so much that I would
| be calling for a government bailout. Capitalism works
| because risks yield both gains and losses. People who
| don't like that should manage their risks.
| mullingitover wrote:
| > One can't escape the sense that if they've done the
| kind of budgeting that a regular American does, they will
| be fine.
|
| I can't escape the sense that if they've done the kind of
| budgeting that a "regular American" does, they're in deep
| trouble[1].
|
| [1] https://www.fool.com/the-ascent/research/average-
| savings-acc...
| shadowgovt wrote:
| Budgeting, not saving. It is entirely possible that the
| median salary in the United States is not enough to save
| on.
|
| But when you have nearly double that salary, what's the
| excuse for failing to save?
| tolmasky wrote:
| Besides the trivially obvious recognition that people
| other than engineers work at companies (cooks, janitors,
| HR, etc.), realize also that, for example, Etsy's sellers
| may be affected since the account used to pay them was at
| SVB. Of course, I'm sure someone here will explain that
| obviously some lady selling bowls in Michigan should have
| done due diligence on her platform's bank of choice to
| make sure that they didn't have any maturity risk.
| Anything short of that really just fundamentally
| represents business incompetence and deserves to be wiped
| out since Peter Thiel decided to cause a run at the bank
| two layers removed from her. But that will teach the
| correct lessons and punish the right people! Clearly
| Thiel should be rewarded for prudently advising everyone
| to remove all funds, while janitors and craftspeople on
| Etsy alike will finally learn the importance of marking
| to market treasuries.
| shadowgovt wrote:
| Actually, for almost all of these companies, cooks,
| janitors, etc are contracted employees and work for the
| contracting company, not the startup. The startup retains
| a contract for services.
|
| This allows them to keep those employees at arm's length
| and not have to pay the kind of salary and benefits that
| their "real" employees enjoy. It has also great bonuses
| in that if the "real" employees want to abuse the snot
| out of those contractors (including really vile stuff,
| obvious violations of the equal employment act), the tech
| company and the contracting company are heavily
| incentivized to "solve" the problem by removing the
| contracted employee from the position. Employees in that
| position, should they want to take action, have to go
| through multiple layers of red tape and ambiguous
| responsibility and risk upsetting the apple cart for all
| of their peers, because the tech company is always at
| Liberty to cancel the entire contract to avoid a
| "problem" contractor.
|
| The whole system is a little bit rotten.
|
| And yeah, it sure does suck for folks who are going to
| get bit as clients of Etsy because Etsy didn't hedge
| bets. Maybe Etsy learned a lesson.
| tolmasky wrote:
| It really sucks for Etsy's sellers so maybe... Etsy
| learned a lesson? Here's the confused lesson by
| association argument again. The majority of your argument
| is around learning lessons, but you momentarily
| acknowledge that perhaps there are in fact people hurt
| here who it would be hard to accuse of deserving it due
| to a lack of due diligence, but you then immediately
| resolve the cognitive dissonance by reassuring yourself
| that perhaps that will make the lesson _Etsy learns_ that
| much stronger.
|
| The majority of your argument revolves around the idea
| that only rich people in this "rotten system" will be
| affected, or that this is an important lesson. When it's
| pointed out that there are many types of employees who
| aren't rich, you say they don't count because they're
| contractors, ignoring that even if true, which I'm not
| necessarily granting, it still doesn't matter since that
| contracting job will still probably disappear and there
| is a high likelihood that they can't just be immediately
| positioned somewhere new. The rich developer may have an
| easier time landing a new position than the cook getting
| a new shift from the contracting company somewhere new.
| But I suppose that's irrelevant, because the point about
| cooks being contractors actually had nothing to do with
| the topic at hand of whether they deserve to be colateral
| damage. Rather, it was meant to derail the conversation
| into a long digression about how these contracting
| agreements further prove how "rotten" these startups
| are... and thus deserve to learn a lesson about treasury
| performance.
| shadowgovt wrote:
| > It really sucks for Etsy's sellers so maybe... Etsy
| learned a lesson?
|
| I hope so. I don't expect the sellers to have done
| anything different. Corporations, however, have a
| responsibility to manage their finances effectively. "We
| weren't smart enough in that space" is no more an excuse
| than it would be if sellers were having problems because
| Etsy's web infrastructure broke down due to lack of
| proper planning for redundancy and fault tolerance.
|
| And I never said nor implied that only rich people will
| be affected. But they're basically the only ones with
| power to do anything different here. The rest of us are
| along for the ride.
|
| Here's the question. Now that this happened, do the rest
| of us just accept that this is how it works? Because if
| we do, nothing changes, and we just get to sit back and
| wait for the whole system to unspool again. Or, we could
| stop treating the machine in California like it's better
| than a Vegas slot machine for most players and start
| building something better.
| tolmasky wrote:
| _> I hope so. I don 't expect the sellers to have done
| anything different. Corporations, however, have a
| responsibility to manage their finances effectively._
|
| Just so I understand correctly, if the seller has an LLC
| they made through legalzoom.com for their Etsy bowl
| business (which is very common and highly recommended),
| then does your sympathy for them immediately evaporate
| since they now have a "responsibility to manage their
| finances effectively"? Why exactly is the Etsy seller off
| the hook in this scenario? Is it a headcount requirement?
| If the Etsy seller LLC is 3 people (two sisters and their
| mom), now are they irresponsible for using Etsy? Are all
| those 3 person startups in YC different somehow? Only in
| that they make "useless" things and the Etsy people make
| "useful" things, and that translates to whether a
| corporation needs to be responsible?
|
| _> Here 's the question. Now that this happened, do the
| rest of us just accept that this is how it works? Because
| if we do, nothing changes, and we just get to sit back
| and wait for the whole system to unspool again._
|
| Accept that what is how it works? It depends on the
| solution. If the solution is providing temporary
| backstops to depositors so that a sale to another private
| bank can be more attractive, then I don't think that's
| anything earth shattering to accept? Especially
| considering it would probably result in a private
| solution happening faster at little to no cost to the
| taxpayer. If congress empowers the FDIC to claw back SVB
| share sales to help make depositors whole, I think that's
| also not anything that people would have a problem
| accepting? Like part of the problem here is that
| completely different parties are lumped together and in
| this fury the only acceptable answer is "no help!" No one
| is arguing for SVB to be bailed out. Those shares are
| going to zero. That is a sufficient market result.
| Enabling a bunch of assets that still have value to be
| maximized to avoid the philosophical dilemma of our Etsy
| seller doesn't seem to be the "end all" nightmare
| scenario it's being chalked up to be here. If anything,
| maybe the focus should be on plummeting interest rates to
| zero making precisely the kinds of "full liquidity paid
| for checking accounts" become an endangered species in
| the first place. Or maybe then raising rates at break
| neck speed despite having questionable results on the
| inflation they're targeting, while clearly affecting
| random pieces of the economy.
|
| _> Or, we could stop treating the machine in California
| like it 's better than a Vegas slot machine for most
| players and start building something better._
|
| It seems like choosing a random 30% of Silicon Valley
| companies to put in hard mode is a close approximation to
| the Vegas slot machine than fad imitating zero interest
| checking accounts that were in no way high risk
| irresponsible investments that had the chance to wildly
| benefit the depositors if the bet would have "paid off"
| vs. if it crashed to zero. Especially given the high
| likelihood that there _are_ sufficient assets to make
| depositors either whole or almost whole, it seems even
| more the case that those disproportionately affected will
| be workers, and not companies. Not to even mention the
| fact that those most responsible (Thiel) aren't going to
| suffer, nor are the mega tech companies that can easily
| survive this, and may even end up just absorbing some of
| these companies and consolidating even more.
|
| I am super curious as to what "something better" looks
| like though. Because right now, the world 6 months from
| now where a random subsection of tech and wine workers
| had their year ruined, while big tech companies and VCs
| are still doing just fine, doesn't exactly seem like
| fertile ground for whatever amazing new system you have
| dreamed up.
| shadowgovt wrote:
| > is it a headcount requirement?
|
| Headcount and age. Etsy is a +1,000 employee company
| that's been around over a decade. Practically bedrock by
| Valley standards. I personally draw the line between
| "small" and "big enough to know better" at 100+ employees
| (around where the EEOC draws the line for mandatory
| reporting). I acknowledge people may disagree on this
| topic; that's where my line happens to be.
|
| FWIW, I don't disagree on the mechanics of your
| suggestion for back-stopping SVB enough for most folks to
| be made whole. I'm more concerned about the mechanisms
| that led to one bank becoming such a linchpin for the
| whole system. We should have learned about "too big to
| fail" already.
|
| > It seems like choosing a random 30% of Silicon Valley
| companies to put in hard mode is a close approximation to
| the Vegas slot machine.
|
| Yes... That's what SV just did to its ecosystem due to
| over-reliance on one bad bank because "optimization is
| king" is the mantra of the whole machine. For us to not
| find ourselves in this boat again in 20 years, the people
| with money power in SV need to un-learn the lesson that's
| been driving SV for decades. _Someone_ needs to be less-
| than-optimal for the system to not be so fragile.
| tolmasky wrote:
| _> Headcount and age. Etsy is a +1,000 employee company
| that 's been around over a decade. Practically bedrock by
| Valley standards. I personally draw the line between
| "small" and "big enough to know better" at 100+ employees
| (around where the EEOC draws the line for mandatory
| reporting). I acknowledge people may disagree on this
| topic; that's where my line happens to be._
|
| To be clear, Etsy is not my concern here. They will
| probably survive just fine regardless of whether we deem
| them to be responsible or not. That's part of the point.
| The sole question was the sellers, and trying to examine
| why they inspire more sympathy to similar-sized companies
| that may be directly banking with SVB. Hence my question
| of whether the mere existence of a legal entity is the
| difference, given that in fact many Etsy sellers do of
| course have simple LLCs set up. I would fine "Hey, Etsy
| sellers need to look into Etsy's bank to be responsible
| too" consistent with "3 person YC companies need to be
| responsible about the bank they choose", or acknowledging
| that's a tall order for both. But not one and not the
| other, was my only point here.
|
| _> Yes... That 's what SV just did to its ecosystem due
| to over-reliance on one bad bank because "optimization is
| king" is the mantra of the whole machine._
|
| If it puts your mind at ease, I think the result is going
| to be the same regardless of what happens to depositors:
| everyone now will try to spread out their money and
| sweeps will become part of startups 101, etc. In that
| sense, the system _has_ worked: the irresponsible bankers
| are being punished, they and their investors lost their
| bank. I promise no one is going to wake up and say
| "well, glad that got magically solved" and not be super
| paranoid going forward. If anything, if depositors aren't
| made whole, this particular demographic is more likely
| to, to your point, over-optimize in that direction
| (perhaps create investment vehicles to short regional
| banks or something, who knows).
| Apocryphon wrote:
| > The majority of your argument revolves around the idea
| that only rich people in this "rotten system" will be
| affected, or that this is an important lesson.
|
| I think the main issue is that the status quo is that
| more often than not such classes never learn any lessons,
| so people are cheering on _any_ hurt they receive, no
| matter who else gets in the way. Discontent is such a
| state that people are becoming, as they say, Jokerfied.
| deathhand wrote:
| Etys sellers who hold more than the FDIC insured limit?
| Yes the limit should be raised by a degree but we can't
| bail out everything all the time.
| tolmasky wrote:
| That's not the situation here. Etsy holds seller payments
| in SVB in an account, that yes of course, is probably
| above the FDIC 250K limit since it represents the amount
| to be paid out to hundres if not thousands of sellers:
| https://www.nbcsandiego.com/news/business/etsy-warns-
| sellers...
|
| Without derailing the discussion into whether Etsy
| "should have known better" (which to be clear is an
| argument that would be made in a simplified vacuum given
| the complexity of them probably just being an
| intermediary between a credit card processor and the
| sellers and thus it being fairly logistically complicated
| to set up that intermediary as some sort of multi-bank-
| account system or whatever), but regardless, even if that
| is the worst way to do it in the world, the point is that
| that's not the individual sellers' fault, and they
| shouldn't be punished for it. Again, as I mentioned in my
| comment, the position that "Well individual Etsy sellers
| should really do a financial analysis on the host
| platform's bank, quarterly, to account for interest rate
| changes, and if they independently conclude that that
| bank is unhealthy, they should pull their store off Etsy
| and... ???" is a bit hard to swallow, and I'm not sure if
| a world we really want to create.
| zamnos wrote:
| > It's hard to dredge up deep, deep wells of sympathy
|
| _This_ , by the way, is why ordinary Americans are
| suffering while the billionaires are winning and laughing
| at us. They have us fighting with each other for
| _scraps_. $120k /yr after taxes doesn't go very far at
| all for a family of four. Kids eat a _lot_ of food! Sure,
| it goes roughly twice as far as $60k /yr does, and, saved
| wisely and not spent on yachts, cocaine, and girls,
| provides a bit more of a financial cushion in case of a
| calamity like the one we're in, but SVB's CEO made $4.8
| _million_ last year, which, budgeted by a regular
| American, is enough for several lifetimes. A software dev
| making $120k /yr, he is not.
|
| Have however much sympathy you can muster for software
| developers who, yes, have more than you do, but don't
| lose sight of the bigger picture.
| shadowgovt wrote:
| We could break the system if we wanted to. Were software
| engineers to unionize alongside the contracted employees,
| it would provide a front that would make it basically
| impossible to operate startups without dealing more
| fairly. You can't run a business that has a building
| without someone collecting the trash, sweeping the
| floors, and keeping the whole thing from falling down.
| Worst-case scenario, fouhders decide to try and operate
| with-from-home employee teams to decrease contractors
| needed, and then the engineers win anyway.
|
| ... It won't happen because we don't want it to. But it
| could.
| azinman2 wrote:
| You know that not only startups use SVB right? Farmers
| and wineries do as well. And either way this is the
| economic engine of America - in its accounts lays the
| next trillions of dollars of GDP. It is unbelievably
| stupid to not find a way to make them whole for a black
| swan event.
| pirate787 wrote:
| This isn't a black swan event, it was run of the mill
| mismanagement.
| diab0lic wrote:
| From the perspective of the bank this isn't a black swan
| event, from the perspective of a smaller farmer or winery
| it is certainly a black swan event.
| ilyt wrote:
| https://www.fdic.gov/resources/resolutions/bank-
| failures/fai...
|
| Average is above one bank a year.
| logifail wrote:
| > from the perspective of a smaller farmer or winery it
| is certainly a black swan event
|
| Q: How much cash do small farmers / wineries have on
| deposit at their bank?
| alonmower wrote:
| Let's say a small farm or winery employees 20 employees
| and pays them an average of $50k a year. Holding three
| months of payroll alone will be over the FDIC limit, let
| alone other money they'll need to buffer all of their
| other expenses.
| logifail wrote:
| > Let's say a small farm or winery employees 20 employees
| and pays them an average of $50k a year
|
| "Show your working" ...
| https://www.bls.gov/oes/current/oes452099.htm
|
| > Holding three months of payroll [..]
|
| Three months of payroll ... in cash?
|
| I have two good friends who own and run wineries in
| France. Both of them are relatively successful, but
| neither of them have anywhere near 20 employees, for the
| simple reason that _they can 't afford to_. The majority
| of the work is done by family members.
| mlyle wrote:
| > Plenty of startups fit that bill and will nonetheless
| be impacted by SVB's failure
|
| Startups are going to get most of their deposits back--
| perhaps all if there's an acquisition. If SVB is not
| acquired, I hope the FDIC is able to get a substantial
| dividend quickly so that they can keep operating and that
| everyone works to keep disruption low.
|
| But I don't think the federal government needs to make
| depositors whole beyond the insurance limits. I think
| that sets its own bad precedent. Maybe some startups are
| going to lose 5-40% of their cash because of their
| treasury management choices. That is OK.
|
| The times when I was a founder of a startup with a
| substantial cash balance--- we hedged the bank risk.
| There was a cost to it. I don't think those costs should
| be socialized.
| thecus wrote:
| [flagged]
| mlyle wrote:
| > I simply don't believe you ever founded a startup.
|
| CTO Recourse Technologies; acquired by Symantec in 2002.
|
| CEO, later VP of Engineering TransLattice; acquired by
| QualComm 2017.
|
| And a couple of other things inbetween. Now I'm a middle
| school/high school teacher.
|
| Your assumption of bad faith is terrible.
|
| > A big variable here is simply when and how money market
| sweep funds will be handled and made available, if you
| had millions without sweeping into a money market fund,
| that's silly.
|
| You just use IntraFi and they take care of the details
| for you. Odds are your bank makes the introduction when
| you ask the question about the exposure.
|
| > This is one of the dumbest views
|
| Make an argument without calling people dumb.
|
| > If the government can protect against huge losses
| because of their liquidity, why in the world wouldn't we
| let them? The bonds SVB held are only mark-to-market
| losses right now because they haven't matured.
|
| Duration risk is real risk.
| wpietri wrote:
| Thank you for this.
|
| In a discussion elsewhere, the moment I mentioned my
| opposition to a bailout, the immediate response was,
| "Sounds like you haven't run a startup -\\_(tsu)_/-".
| I've started 4 companies, one of them a classic venture-
| backed thing.
|
| The immediate assumption of "Oh, you people who are not
| as me and just can't possibly understand tech, so you
| don't get to have an opinion," is exactly the sort of
| arrogant exceptionalism that got a lot of people into
| this jam. Like, I get that it's awful to realize one's
| business is possibly doomed. I have been there. But in
| that moment to flail around and blame others rather than
| understanding the mistake? That's a great way to keep
| making the same sort of arrogant mistakes.
| mlyle wrote:
| And, in turn, thank you for your comment.
|
| > is exactly the sort of arrogant exceptionalism that got
| a lot of people into this jam
|
| Well, I don't think you start a business if you're being
| entirely rational, either. You basically need an outsized
| belief in your own capabilities _and_ need to have the
| erroneous belief that you entirely control your own
| destiny.
|
| Black swan events that might entirely wipe you out and
| that are completely out of your control cause cognitive
| dissonance.
|
| I _do_ think FDIC should choose to incur some amount of
| risk of being surprised by additional liabilities by
| making a quick dividend payment. The benefits of keeping
| things moving and adding some clarity soon outweigh a
| small risk of partially bailing out losses.
| wpietri wrote:
| Oh agreed. And I think the FDIC will be doing that. On
| Friday they promised "an advance dividend within the next
| week": https://www.fdic.gov/resources/resolutions/bank-
| failures/fai...
| Jtsummers wrote:
| > You're expecting early stage venture backed companies
| to have treasury expertise? Time to focus and think about
| that?
|
| You hire a financial manager, in-house or a service.
| Basic delegation task that any one (individual or
| business) dealing with more than a million dollars should
| probably be doing anyways. Certainly anyone dealing with
| the kind of money we're talking about here with SVB's
| customers.
| ZachPruckowski wrote:
| > I hope the FDIC is able to get a substantial dividend
| quickly so that they can keep operating and that everyone
| works to keep disruption low
|
| The FDIC has publicly said there will be an advance
| dividend and I don't see why it wouldn't be substantial,
| given that there's going to be a LOT of recovery unless
| SVB has big non-public problems.
| mlyle wrote:
| FDIC has to make a decision about risk. There's no way
| they have done enough diligence to have a complete
| picture of liabilities (e.g. to find any non-public
| problems).
|
| FDIC should pay early (Monday-Tuesday, not anytime "next
| week" as they've indicated so far) and should pay a big
| chunk, even though it's not _completely_ safe.
|
| Every day that goes by with uncertainty, the cost of the
| fear grows.
| justeleblanc wrote:
| Why wouldn't there be a way? They're a government
| corporation with a $2bn budget, thousands of employees,
| whose only purpose is to oversee this kind of event. And
| it's not like they've been overwhelmed with work
| recently. The bankruptcy was only made public Friday, but
| they've been working on it for longer than that. Yes,
| they've certainly done their due diligence.
| mlyle wrote:
| > The bankruptcy was only made public Friday, but they've
| been working on it for longer than that.
|
| Not much longer. It's only Thursday's run that tipped SVB
| into insolvency.
| bugbuddy wrote:
| So, legally speaking what authority does the Treasury
| Department have to make depositors whole beyond the
| legally guaranteed $250,000 insured and an equal share up
| to the amount of their deposits of the auctioned and
| liquidated assets?
|
| The question I have is do some of the proceeds of the
| liquidation get used for $250,000 insurance payout first?
| Or do the tax payers get to help?
| mlyle wrote:
| > The question I have is do some of the proceeds of the
| liquidation get used for $250,000 insurance payout first?
|
| Yup. FDIC gets the bank, and _has_ to pay the insured
| amount. Then, the remainder must be managed for the
| benefit of depositors, other creditors, and shareholders.
| Any shortfall of the insured amount can be paid from the
| deposit insurance fund.
|
| > Or do the tax payers get to help?
|
| The FDIC deposit insurance fund is paid for by banks.
| [deleted]
| girvo wrote:
| ...where does the extra money go then? If a bank has more
| than the insured deposits still, but is insolvent, where
| does the rest of it go? To the depositors, is what makes
| sense to me.
| nradov wrote:
| Yes, if the bank isn't acquired then the assets will be
| liquidated and depositors will receive most of the
| proceeds. They are relatively senior in a bankruptcy
| process.
| causality0 wrote:
| I think people have forgotten that depositor bailouts are
| not just free money, but money taken from other people.
| There's a balance between minimizing the pain to
| depositors and minimizing the pain to the rest of society
| by not only taking money from them, but creating an
| environment where people don't have to care about where
| they put their money and thus have no reason to demand
| the people they trust with their money not act like
| reckless assholes. Corrupting the entire concept of risk
| vs reward would destroy us all.
| bnralt wrote:
| To further this, a lot of people (see Sam Altman, for
| example[1]) are saying the federal government should give
| depositors all of their money bank, and don't seem to
| care at all about what this would mean in the long run.
| Is the FDIC now insuring all deposits in the U.S. for an
| unlimited amount? What would the implications of that be?
|
| Maybe there should be changes made to help protect
| depositors more, but instead of a collected and rational
| conversation about how we'll treat deposits going forward
| we're getting glib "just give these people there money
| back, they don't deserve this" responses. Of course these
| things are tragedies, but the degree to which the federal
| government assists people in these situations is a
| complex discussion, and we have to come up with a
| consistent approach.
|
| People are asking about salty response, but this kind of
| cavalier attitude toward the financial system from
| supposedly serious thought leaders is a bit alarming.
|
| [1] https://twitter.com/sama/status/1634958179657449475
| geodel wrote:
| Was it Muhammad Ali who said "Everyone has a plan until
| they get punched in the mouth"?
|
| Seems to me all these "disruptors", "thought leaders",
| "visionaries" are disrupted and their _plan_ to deal with
| this is nowhere to be seen.
| TheGrassyKnoll wrote:
| Mike Tyson, the epitome of sound fiscal management. ($300
| million lifetime earnings, had to declare bankruptcy)
| Apocryphon wrote:
| Sounds like he's in the perfect position to know the
| fruits of such errors.
| FireBy2024 wrote:
| Mike Tyson
| dctoedt wrote:
| > _Was it Muhammad Ali who said "Everyone has a plan
| until they get punched in the mouth"?_
|
| It was Mike Tyson - https://www.sun-
| sentinel.com/sports/fl-xpm-2012-11-09-sfl-mi...
| bushbaba wrote:
| The 250k limit should be inflation adjusted. It's not
| been raised since 2008. If inflation adjusted the FDIC
| insurance would be closer to 350k
| mycall wrote:
| If I had $1M stored in SVB, I would have 4 accounts with
| $250k each. Why is this so hard for people to understand?
| blep_ wrote:
| The limit is per depositor * bank, not per account.
| theLiminator wrote:
| Maybe the fed should open a bank for deposits that's
| guaranteed but provides either tbill interest or zero
| interest.
|
| It's pretty ridiculous for people to need to judge
| whether their bank is fiscally sound.
| deathhand wrote:
| Are your computers and networks secure?
|
| If you operate in 1% space of wealth there are and should
| be risks. Making everything the lowest common denominator
| literally leaves us with Camacho for president.
| idopmstuff wrote:
| Nailed it. If people get whatever short term vengeance
| they're looking for, the contagion will cause a whole lot
| of collateral damage to people who aren't in tech.
| wpietri wrote:
| If you're claiming that startups are so systemically
| important that they need special protection, then you are
| also saying that they are so systemically dangerous that
| they need much more aggressive regulation.
|
| Is that really what you want?
| notfromhere wrote:
| If you're a small or medium sized business and you just
| saw SVB evaporate and depositors take a substantial
| haircut, why wouldn't you open up an account at JPM on
| Monday and never again bank at a regional bank of SVB's
| size?
|
| SVB was undone by a bank run, not because they were doing
| anything particularly risky. Something like 1/4 or 1/3 of
| all their deposits tried to exit on Thursday - no bank
| can survive that given how fractional reserve banking
| works.
| wpietri wrote:
| If you are a small business who has way more than $250k
| but only has time to manage one bank account and lack the
| need for more sophisticated treasury management, then
| yes, I would absolutely say you should put it in the
| least risky bank. Or you could take the wild step of not
| putting all your eggs in one basket.
|
| The bank run was the proximate cause of the failure, but
| they also made some big bets and lost, making them
| vulnerable to the bank run in the first place.
| danenania wrote:
| The end point of every business doing "treasury
| management" to keep all their accounts under 250k is that
| the FDIC ends up insuring all the money anyway. The only
| difference is lot more of it goes to fees for money
| managers and banks, and starting/running a business is a
| lot more complicated.
|
| What's the point? Either set a limit that can't be
| skirted by maintaining multiple accounts or guarantee the
| same amount in a single account.
| Macha wrote:
| The point is that these diversified funds are much less
| likely to need the FDIC to bail them out all at once.
| wpietri wrote:
| Is that what you think large businesses do for treasury
| management? Just keep opening bank accounts until they've
| got one with every bank in the US?
| danenania wrote:
| It's one component of it, clearly. That's pretty much
| what IntraFi does--while they don't open an account with
| _every_ bank, they have thousands of banks in their
| network and claim to be able to maintain FDIC insurance
| for up to 160 million.
|
| If FDIC wants it to be possible to insure that much, they
| should cut out the middlemen and financial engineering
| requirements and just insure deposits of every business
| to that amount. If they _don't_ want to insure that much,
| then IntraFi and other similar services should be
| illegal.
| wpietri wrote:
| Nope. The FDIC's main concern is with individual bank
| failure. If people spread their money out among many
| banks, then they have lowered both their risk and the
| FDIC's risk.
|
| If you'd like to argue that the FDIC should go further so
| as not to subsidize people with shit-tons of cash, I'm
| certainly open to that. But the increased regulatory
| complexity might not be worth the total risk reduction,
| so I'd want to see some math. I suspect it's mainly a red
| herring, though, as I couldn't find any sign that Intrafi
| is a particularly large business.
| [deleted]
| dragonwriter wrote:
| > If FDIC wants it to be possible to insure that much
|
| FDIC doesn't want to insure that much against _a single
| bank failure_. Encouraging diversification of large
| balances helps the FDIC's goals, since it reduces the
| impact of single bank failures and reduces the
| possibility of single failures turning into broader
| economic collapses without increasing the cost to the
| Treasury of a single bank failure, which is an efficient
| way of promoting the purpose for which the FDIC exists.
| danenania wrote:
| If the deposits are insured, a bank failure is far less
| likely in the first place.
|
| It might be efficient for the FDIC to require complex and
| expensive financial engineering just to keep operating
| capital safe, but it's hostile to businesses, especially
| small ones, and is out of reach for many.
| dragonwriter wrote:
| > It might be efficient for the FDIC to require complex
| and expensive financial engineering just to keep
| operating capital safe, but it's hostile to businesses
|
| The FDIC exists to protect against a general collapse of
| banking like the one that preceded the Great Depression,
| not as a generalized subsidy to business.
| greatwave1 wrote:
| > If they don't want to insure that much, then IntraFi
| and other similar services should be illegal.
|
| Why though? The "$250k per bank" rule is clearly a
| feature of the system, not a bug. If the FDIC wanted to
| have the insurance limit be across all banks, that's how
| they would've structured the rule.
|
| But they didn't, because their purpose wasn't to provide
| unlimited protections to corporations from bank failure,
| it was to limit the impact of any individual bank's
| failures and decrease the likelihood of bank runs.
|
| The current rule does this effectively, and encourages
| larger businesses to diversify their assets while also
| providing significant downside protection to many
| individuals and small businesses.
| notfromhere wrote:
| Yes and now think about the implication of all the SMBs
| flowing their cash out of their regional banks all at
| once. And if you have anything more than a few employees,
| you definitely have an account over $250k because that's
| still an incredibly small business.
|
| There's a serious risk of contagion here.
| wpietri wrote:
| I understand you have a fear of contagion risk, but I
| don't see many signs of it. I think this mainly happened
| because SVB had a depositor base where a big chunk was
| tightly knit and prone to herd-like behavior. Most
| companies just aren't a) in the red, b) letting millions
| in cash sit around, and c) lacking in treasuring
| management capacity.
|
| But if there are a ton of regional banks who took
| advantage of laxer regulation and had balance sheets in
| as poor a shape as SVB, then I am fine with some of them
| failing too. It won't be anywhere near the problem that
| 2008 or the S&L crisis was, and we'll end up with tighter
| regulation for those banks next time around.
| danenania wrote:
| You don't see any risk of contagion? We have a fractional
| reserve banking system. If even a small percentage of
| depositors try to withdraw all at once, that can bring
| down any bank.
|
| Right now, everyone in the country with uninsured
| accounts is being incentivized to pull those deposits and
| pull them fast. We don't know how things will turn out,
| but there is obviously a major risk of contagion.
| wpietri wrote:
| As with the other person, I understand that's a thing
| you're imagining. I'm just not seeing much evidence for
| it. It is a possibility? Sure. But not one I see as a
| major risk. And from what financial regulators are
| saying, I don't think they see it that way either.
| notfromhere wrote:
| You're not seeing it because banks are generally closed
| over the weekend. This is like sitting in the eye of the
| hurricane and saying that everything is fine because it's
| not windy yet.
| bugbuddy wrote:
| I would argue that holding long duration treasuries in a
| rising rate environment and capitalizing before marking
| to market are two very risky ways to run a bank.
| chimeracoder wrote:
| > I would argue that holding long duration treasuries in
| a rising rate environment and capitalizing before marking
| to market are two very risky ways to run a bank.
|
| Not to mention doing so when you know that most of your
| customers' businesses are incredibly sensitive to
| interest rate hikes, in part because you have explicitly
| marketed to that market for years.
| x0x0 wrote:
| That's a very odd way of stating "here's a sector that
| will be badly hurt if the contents of their checking
| accounts disappear with an unknown timeline and
| percentage recovered."
|
| By that rubric, you could perfectly well claim that your
| accountant, laundromat, and lawn care companies are
| systematically important, because they'd fire their
| employees if their checking accounts disappeared.
| wpietri wrote:
| Sure, so I'm saying those things are not systemically
| vital such that they should be exempt from the
| consequences of their market choices.
|
| You're the one claiming there will be contagion here. I
| don't think that's the case. If a bunch of unprofitable
| companies with bad treasury management go under, I think
| the rest of the economy will be fine. Companies go out of
| business every day.
|
| If you are claiming that tech is somehow special such
| that contagion will harm the wider economy, as was the
| case with mortgage-backed securities in 2008, then any
| taxpayer-funded bailout should be a one-time deal that
| goes along with enough regulation so that contagion is no
| longer a risk in the future.
| closeparen wrote:
| The issue is whether checking accounts at chartered banks
| are "market choices" for which there should be
| "consequences." The banking system is so regulated
| because when we lived in that world, it was a bad time,
| and collective action to make banks reliable was in
| everyone's interest. If we are back to "stupid depositors
| deserve what they get" then what exactly is bank
| regulation for?
| wpietri wrote:
| Bank regulation's job is not to create a magic world of
| unicorns and rainbows. It's to a) keep regular folks from
| losing their shirts due to the shenanigans of the rich,
| and b) to prevent systemic risk that could harm the wider
| economy.
|
| Banks make money through risk. Sometimes those risks work
| out and people make money. Sometimes those risks don't
| work out and banks fail. This is capitalism 101, and to
| the extent banks are capitalist enterprises, there's no
| way around it. Government's job here is just to limit the
| damage.
|
| If you want banks to be perfectly safe, then you are
| arguing for government-chartered, not-for-profit, non-
| capitalist banks. These are things that exist, but we
| don't have them here in the US. We could, if you really
| want people with millions in cash to have someplace
| perfectly safe to park their money, you can certainly
| argue for their creation.
| x0x0 wrote:
| > You're the one claiming there will be contagion here.
|
| In the sense that I never said that, sure.
|
| The only thing I claimed, even implicitly, is firing a
| bunch of people because their employer's cash disappeared
| would be bad.
| wpietri wrote:
| No, you explicitly used the word contagion: "If people
| get whatever short term vengeance they're looking for,
| the contagion will cause a whole lot of collateral damage
| to people who aren't in tech."
|
| That has a technical meaning in finance:
| https://en.wikipedia.org/wiki/Financial_contagion
| x0x0 wrote:
| idopmstuff != x0x0
|
| https://news.ycombinator.com/item?id=35122581
|
| I repeat: "In the sense that I never said that, sure."
| wpietri wrote:
| My apologies; I did confuse the two.
|
| In which case, since you're not claiming contagion risk,
| I return to my previous point that there is no reason for
| taxpayers to bail out rich people who took a gamble and
| lost.
| BeFlatXIII wrote:
| Perhaps we ought to stop paying off the hostage-takers
| and let things follow their natural course.
| MrMan wrote:
| that's a lie. and if there is contagion it won't be
| stemmed by bailing you as a depositor out, we will need
| that money elsewhere to shore up the system. good luck to
| you
| Jtsummers wrote:
| What contagion? How is this going to spread to the rest
| of the US that isn't actually dependent upon any of these
| startups or this bank? No other banks have yet popped up
| with similar risk exposure so its not a systemic issue
| like 15 years ago and startups are not that big a part of
| the US economy.
| idopmstuff wrote:
| SVB was the sixteenth largest bank in the US. When
| businesses see that their money isn't safe in the
| sixteenth largest bank, they're going to cause bank runs
| on all the smaller banks as they attempt to move all of
| their money to the top three or four.
|
| > No other banks have yet popped up with similar risk
| exposure so its not a systemic issue like 15 years ago
| and startups are not that big a part of the US economy.
|
| That doesn't matter in the slightest. Companies don't do
| deep evaluations of the financial risks of their banks
| (as clearly evidenced by what's happening right now).
| They'll flee from what they perceive as unsafe into what
| they perceive as safe, regardless of balance sheet
| realities.
| jonfromsf wrote:
| The top four banks are too big to fail and WILL be
| rescued, as happened in 2008. Bank of America or Citi
| failing would be the end of America as we know it. That's
| why everyone will move to the bigger banks. Which is
| obviously not what we want. But it's what will happen if
| you leave depositers out to dry because it's a smaller
| bank.
| andrewmutz wrote:
| I don't think that's likely. Most banks have about half
| of their deposits FDIC insured because their depositors
| have low balances. SVB only had 3%. Most banks are
| unlikely targets for a bank run as a result.
| eyphka wrote:
| This is simply not true and very easy to verify via
|
| https://banks.data.fdic.gov/bankfind-suite/bankfind
|
| Most banks actually have most of their deposits NOT
| insured. Most banks are not bofa.
| Jtsummers wrote:
| > they're going to cause bank runs on all the smaller
| banks as they attempt to move all of their money to the
| top three or four.
|
| One of the primary issues being discussed is the insured
| limits at banks, and the uncertainty on whether
| depositors can be made "whole" (it's unclear whether
| people saying that mean 100% or something close to 100%,
| so I'm putting it in quotes, some people are being really
| loose with their terms in this thread). Why the fuck
| would people, given that context, ever move "all of their
| money" to only the biggest 3 or 4 institutions and
| _increase_ their risk by consolidating in exactly the
| same way that caused the current problems? If anything
| this is a potential _boon_ for the many smaller banks as
| they can gain additional depositors as people wise up to
| their risk exposure.
| akavi wrote:
| Because if there was a run on JP Morgan, the US
| government would absolutely "bail out" depositors.
|
| Consolidating increases the risk of a bank run, decreases
| the risk to the individual depositor.
| Jtsummers wrote:
| I can see the logic of that, "Let's act irrationally
| together and force the government to bail us out next
| time we make a run on our own bank." Or they can act
| rationally, distribute (manually or through existing
| methods) their cash across multiple banks so that their
| risk exposure is lower and they don't have to depend on
| the government maybe, possibly, bailing them out. You
| know, the thing they'd have done if they'd hired
| financial managers in the first place (which obviously
| they didn't, or they hired incompetent ones).
| throw2311 wrote:
| It's not irrational to act in your own interest. It's
| irrational to suppose that everyone should act in the
| majorities interest.
| Jtsummers wrote:
| I'm not saying they should act in the majority's
| interest, I'm saying they should act in their own
| interest. Mitigate their risk by managing their capital
| properly instead of hoping ("Hope is a poor substitute
| for strategy") that things will work out. It's irrational
| to act in a way that, if a failure occurs, requires
| someone else to bail you out when they aren't legally or
| ethically required to bail you out. That's operating on
| hope, not strategy.
| [deleted]
| brador wrote:
| There's always the option to release founder equity in
| exchange for more investment. If the startups were viable
| before, they're most likely still viable now.
|
| Already picked up some great deals and next week is
| booked dense.
| dehrmann wrote:
| It's just that rather than them failing because their
| product was bad or they're working on a bullshit idea, they
| might fail because their _bank_ failed? And not some fancy
| crypto bank, a regular, government-regulated bank? Even if
| you want to see the startup space fall, that 's a rather
| unsatisfying way for it to happen. It's not a SBF moment.
| jjulius wrote:
| It's this.
|
| I would also like to point out that it's perfectly okay to
| simultaneously take pleasure in an industry being culled of
| precisely what you described, _while also_ feeling bad for
| some of those who may lose their jobs as a result. Ain 't
| nuance neat?
| idopmstuff wrote:
| > I would also like to point out that it's perfectly okay
| to simultaneously take pleasure in an industry being
| culled of precisely what you described, while also
| feeling bad for some of those who may lose their jobs as
| a result. Ain't nuance neat?
|
| Absolutely. What's surprising to me is the absolute lack
| of that nuance on HN. It's all just BURN IT ALL TO THE
| GROUND over the last few days.
| urbanhole wrote:
| Internet people are garbage, and HN is not special in
| this regard. This is because people are garbage.
|
| People love tearing others down. This is the rule.
| layer8 wrote:
| This comment is amusingly self-referential. (As is this
| one, I guess.)
| matheusmoreira wrote:
| Yes. We're absolutely not interested in seeing the US
| government bail out banks _yet again_ , especially not
| banks that just happened to get fucked by their "safe
| investment strategy". I really have no idea why you are
| surprised.
| bart_spoon wrote:
| Did you read the title of this thread? No one is arguing
| about bailing out a bank. There is a difference between
| bailing out a bank, and ensuring customers of said bank
| who did nothing wrong gain access to their money. Yellen
| is saying this exact thing. For some reason people like
| yourself are unable to differentiate between the two.
| matheusmoreira wrote:
| "People like myself" are tired of watching banks wreaking
| havoc and suffering zero consequences for it. Their "safe
| investment strategies" failed, they're not solvent/liquid
| enough to pay back their customers, they're getting
| literally liquidated in a desperate attempt to raise
| enough money to make everyone whole again. And yet people
| keep depositing money into these things as if it's not a
| systemic problem.
|
| _I make it a point_ not to differentiate between the
| two. Bailing out a bank 's customers _is_ bailing out the
| bank. By all means, liquidate the bank and distribute
| that cash. People are already commenting down below that
| it might not be enough. If it 's not enough, tough. They
| made a bet and they lost. Consider not using a bank next
| time.
| idopmstuff wrote:
| But what you're saying here is unrelated to the reality
| of the situation. Yellen has already said there will be
| no bailout of the bank. A bailout would be something that
| rescues equity holders. What people are talking about
| here is making sure depositors don't lose their money.
| wpietri wrote:
| There is more than one kind of bailout. Any taxpayer
| money going in is a bailout. Giving taxpayer money to
| rich depositors is a bailout.
| lanstin wrote:
| Mostly the money comes from fees levied on banks in the
| FDIC program.
| wpietri wrote:
| Yes, but plenty of people are calling for going beyond
| that.
|
| And it's not clear to me that other banks would be
| excited to pay higher insurance premiums to bail out
| Silicon Valley Bank's customers here. If you see
| something otherwise, please let me know.
| matheusmoreira wrote:
| I don't see "depositors" as a special class of people at
| all. They're equivalent to shareholders to me. They all
| poured money in and expected dividends.
|
| The true reality of the situation is that these people
| lent their money to the bank. To bail them out is
| equivalent to bailing out shareholders.
| noisenotsignal wrote:
| Depositors don't put money in a bank expecting profits!!
| Yes they might get interest, but the main goal is safe
| storage of easily accessible money. Where exactly do you
| expect people to put money if not a bank?! And do you
| really expect, and want to live in a world where there is
| such an expectation (due to unreliable financial
| institutions), the average startup founder to spend time
| hedging bank risk?
|
| Not to mention that depositors can get their money back
| without taxpayer money being used. That's the whole point
| of the FDIC stepping in. SVB's assets have value and can
| be used to give money back; if another bank buys SVB,
| odds are depositors will get the vast majority of their
| money back. It's not a bailout if the government is not
| spending money and I don't know why even a positive, non-
| bailout outcome seems to be viewed unfavorably.
| matheusmoreira wrote:
| > the main goal is safe storage of easily accessible
| money
|
| Absolute bullshit. If that was the goal, banks would be
| 100% solvent at all times. Every single dollar people
| ever deposited in the bank would be sitting there in the
| bank's safe.
|
| That's NOT what happens in practice. Banks simply
| _cannot_ bear to watch a huge pile of money just sitting
| there safely doing nothing. So they do fractional reserve
| banking. People deposit 100 dollars at the bank, the bank
| stores like 10 dollars only and then loans out 90 dollars
| to anyone in need of cash. Then the bank literally lies
| to people 's faces when they provide a statement saying
| they have $100 in their "account" when in fact they only
| have 10 dollars with $90 being tied up in outstanding
| liabilities and therefore exposing them to risk.
|
| Anyone who "deposits" money at a bank without expecting
| profits in return has been fooled twice. Thrice if they
| tolerate "administrative fees" for the "service".
|
| > And do you really expect, and want to live in a world
| where there is such an expectation (due to unreliable
| financial institutions), the average startup founder to
| spend time hedging bank risk?
|
| Looks like we live in such a world already.
| noisenotsignal wrote:
| I understand the mechanism that occurs in reality, but
| also in practice the average person puts money in the
| bank primarily for storage. If you ask someone why they
| have a bank account, odds are the answer is not "to make
| money". They do it because it's commonly held financial
| advice that this is better than putting cash in a box
| under their mattress (not just for returns, but for
| safety and ease of access). It is not fair to lump these
| people in with shareholders, in terms of profit
| expectation, and say they have just as little right to
| their money back.
|
| But perhaps this is a learning opportunity for me. I'm
| sure you have a stash of money somewhere for paying
| bills; obviously you need relatively quick access to this
| stash. You probably also have a larger stash as an
| emergency fund, which doesn't need to be as immediately
| accessible but still needs relatively quick access (so a
| CD won't cut it). Where are you putting these stashes? (I
| guess your personal stashes might be small enough to be
| FDIC insured, so maybe pretend to be a small startup with
| a couple millions in cash.)
|
| And regarding your point on banks hating to sit on money
| - they have to make money somehow as they have bills to
| pay. They can either charge a fee to hold your money or
| try to make money off deposits. The latter is obviously
| riskier, but the former is on average worse for consumers
| (they lose money by having money..?). If you would rather
| not pay money to have someone hold it for you, fractional
| reserves are a necessary construct.
|
| Edit: > Looks like we live in such a world already
|
| Not if the FDIC successfully makes everyone whole without
| spending taxpayer money! Which, again, seems like a
| positive outcome no one should be rooting against.
| matheusmoreira wrote:
| > in practice the average person puts money in the bank
| primarily for storage.
|
| > If you ask someone why they have a bank account, odds
| are the answer is not "to make money"
|
| > They do it because it's commonly held financial advice
| that this is better than putting cash in a box under
| their mattress (not just for returns, but for safety and
| ease of access).
|
| Well, that's the problem. People actually believe this
| "your money is safe at the bank" common sense. Tell them
| otherwise and they treat you like you're one of those
| tinfoil hat crazies. Maybe they'll believe otherwise when
| the banks fail and their money is lost.
|
| > It is not fair to lump these people in with
| shareholders, in terms of profit expectation, and say
| they have just as little right to their money back.
|
| Sure it is. They loaned their money to the bank. They
| exposed themselves to the risk that the loan would not be
| paid back. That they were ignorant of what they were
| doing does not somehow excuse them of their culpability.
|
| > I'm sure you have a stash of money somewhere for paying
| bills
|
| I have exactly $0 in my personal checking account. All
| expenses are paid with credit. Then I pay the bank off in
| full the second money enters my account. Any and all
| remainders are immediately invested until $0 remains.
|
| > You probably also have a larger stash as an emergency
| fund, which doesn't need to be as immediately accessible
| but still needs relatively quick access (so a CD won't
| cut it).
|
| My emergency fund is about the only thing I keep in a
| bank account long term. In several liquid investment
| accounts in different banks. With full knowledge these
| banks could flop at any moment.
|
| > I guess your personal stashes might be small enough to
| be FDIC insured, so maybe pretend to be a small startup
| with a couple millions in cash.
|
| In my country, bank accounts are insured up to some
| amount per bank per our social security number
| equivalent. Therefore, when that amount is exceeded, I
| spread them over multiple banks. If money accumulates to
| the point I can buy real property, I immediately do so
| instead of leaving it at the bank.
|
| It's a pretty simple algorithm.
|
| > And regarding your point on banks hating to sit on
| money - they have to make money somehow as they have
| bills to pay.
|
| _Or_ they could charge you for the storage service
| instead. Maybe if banks were in the storage business it
| 'd actually make sense to pay them a single cent in fees.
| They're not, so it doesn't.
|
| > Not if the FDIC successfully makes everyone whole
| without spending taxpayer money! Which, again, seems like
| a positive outcome no one should be rooting against.
|
| Yeah, and everyone just keeps on believing in banks.
| Positive outcome for them, not for society as a whole.
| noisenotsignal wrote:
| I guess your system works, but I hope you'd agree it's
| quite the hassle! It also seems you'd be ok with paying
| fees for pure money storage, though hopefully you can see
| why the average person would hate such a setup.
|
| I think from your POV that banks are horrible, thinking
| that even depositors should lose their money is in fact a
| defensible argument. So I concede that your view is one I
| can respect despite disagreeing.
|
| But in my view, banks are a useful fiction because of the
| utility they provide (specifically easy storage of and
| convenient access to money). Even if a person can buy
| property to reduce bank risk (again, a super inconvenient
| workaround!), I'm not sure I want _businesses_ to be
| doing so, especially in light of the likely resulting
| impact on property values. I acknowledge a system relying
| on banks indeed has risks, but to me that's a stronger
| argument for better regulations and protections to
| mitigate the risks than it is an argument to dissolve the
| system and lose its benefits.
| matheusmoreira wrote:
| I also concede that this fiction is convenient. I oppose
| it mainly because I completely distrust the current bank
| based implementation of it. Technology that obsoletes
| banking has yet to be invented. I thought
| cryptocurrencies would change something but they turned
| into stocks instead. Even worse: they literally
| reinvented banks on top with all of the downsides and
| none of the benefits. There's also the fact they don't
| solve secure storage: nothing stops some criminal from
| holding you at gunpoint and forcing you to irreversibly
| transfer cryptocurrencies to their wallets. Nothing stops
| them from kidnapping people and emptying their credit
| cards and bank accounts either but at least society
| manages to make the bank absorb some if not all of those
| losses. My country launched a central bank electronic
| transfers service and every day I see news of people
| irreversibly scammed out of tens of thousands.
|
| Real property solves that problem best. The criminal
| can't take you to the government office with a gun to
| your head and force you to sign over the property to him.
| Property is also what capitalism is all about: actually
| owning stuff. Engaging in it keeps the fabled "you'll own
| nothing" dystopia at bay.
| wrs wrote:
| You're expecting dividends from your checking account?
| matheusmoreira wrote:
| I do expect interest payments from any money of mine
| that's not in my physical posession. Checking accounts
| don't pay interest so I don't use them. They're just a
| temporary register for my "pay bills" and "invest"
| operations.
| wrs wrote:
| I don't know where you've been banking for the last ten
| years or so, but I wish I did -- interest payments on
| liquid deposits weren't a thing for a long time. And
| startups don't "invest", they only "pay bills".
| matheusmoreira wrote:
| I'm brazilian so I use brazilian banks. Some of my banks
| pay me interest on liquid accounts. I don't allow money
| to accumulate in the accounts of those that don't. I also
| spread my investments over as many banks as possible: my
| accounts are _independently_ insured for up to some
| amount. I also move money off of the banks as soon as
| humanly possible by buying real property instead. I don
| 't trust them.
| wrs wrote:
| You do this for your _business_ accounts?
| matheusmoreira wrote:
| You bet. My father did too. It's one of many reasons why
| he was highly successful in responsibly managing the
| money of every institution he was ever put in charge of.
| louloulou wrote:
| They're not shareholders, they are creditors, by
| definition. That's why bank statements have a little "CR"
| next to the balances. In a bankruptcy, shareholders get
| wiped out first, then creditors start taking haircuts...
| it's worked this way since forever.
| stuckinhell wrote:
| Alot of people are rightfully upset because the banking
| industry cannot seem to get its shit together. Why do so
| many banking/financial crisis's keep occurring ? Why are
| executives not being put in prison for ruining so many
| lives ?
|
| People are reaching their limits.
| endtime wrote:
| > Why do so many banking/financial crisis's keep
| occurring ?
|
| This one, AFAICT, happened because the government greatly
| restricted what banks could do with their funds. One of
| the only options available in large volumes is a
| government instrument subject to risk from the Fed
| raising rates rapidly.
|
| > Why are executives not being put in prison for ruining
| so many lives ?
|
| I hope people only get put in prison for breaking actual
| laws. And if the SVB execs broke laws then yes, they
| should go to prison. But I haven't heard it alleged by
| anyone that they have.
| mp2 wrote:
| > This one, AFAICT, happened because the government
| greatly restricted what banks could do with their funds.
| One of the only options available in large volumes is a
| government instrument subject to risk from the Fed
| raising rates rapidly.
|
| So the solution to just let banks do whatever they want?
| A bank that is prevented from taking excessively risky
| action becomes insolvent, and your answer is to allow
| them to take even _more_ risk? The Fed has been signaling
| for a year that rates are going to keep rising, it is
| eminently predicable what that means to professionals in
| the industry. Hubris at its best. Have you even heard of
| Glass-Steagall, or have a basic understanding of the last
| 100 years of economic theory?
|
| > I hope people only get put in prison for breaking
| actual laws. And if the SVB execs broke laws then yes,
| they should go to prison. But I haven't heard it alleged
| by anyone that they have.
|
| A laughably naive thing to say in more than a few ways.
| startupsfail wrote:
| This is the community that claims that it will save the
| world. While it behaves with such shortsightedness that
| it can't even save their piggy bank. Should it be trusted
| with more money and power (that the bailout gives)?
| flappyeagle wrote:
| This isn't nuanced. It's confused.
|
| If startups were going under because it turns out that
| they were pointless and there was no market, and they ran
| out of runway... then sure.
|
| But this is their house catching on fire and all of their
| money just vanishing through no fault of their own.
|
| It doesn't distinguish between good startups and dumb
| ones, real businesses and nonsense -- how could you root
| for this beyond pettiness?
| dragonwriter wrote:
| > But this is their house catching on fire and all of
| their money just vanishing through no fault of their own.
|
| Inquiry into bank finances, diversification across banks,
| etc., are all _available_ options. Maintaining large
| uninsured balances at a single bank without doing those
| things (or doing the first, but not taking appropriate
| actions thereafter) is a choice.
|
| I am _not_ opposed to reasonable government action to
| mitigate ripple-effect harms given the externalities, but
| the idea that the startups involved have _no_
| responsibility here is misguided.
| closeparen wrote:
| >Inquiry into bank finances
|
| If only we could centralize the investigation of bank
| finances and judgement of whether they are healthy enough
| to use into some sort of agency, staffed by domain
| experts, with the power to demand relevant documents and
| shut down unhealthy banks. Nah, that would never work,
| let's just make it the depositors' responsibility.
| dragonwriter wrote:
| "Healthy enough for general use" and "healthy enough for
| your particular use" are...not necessarily the same.
| closeparen wrote:
| Which uses are appropriate at a bank that is about to
| fail?
| wpietri wrote:
| > no fault of their own
|
| Making bad treasury management decisions is not "no fault
| of their own". If people want to make the case for a
| taxpayer bailout, they should start with something like,
| "Look, we know we fucked up by [not paying attention to
| something important|taking a risk we thought we could get
| away with|getting high on our own supply], but we're
| humbly asking for help."
|
| If somebody's house catches fire because they cheaped out
| on the furnace _and_ the didn 't get homeowner's
| insurance, I'm going to feel bad for them. They have some
| Kubler-Ross time ahead for sure. But unless they're
| family, I'm not taking them in.
| mlyle wrote:
| > But this is their house catching on fire and all of
| their money just vanishing through no fault of their own.
|
| You can choose to hold money in multiple banks. There are
| services that will happily set up laddered CDs across
| many institutions for you to diversify exposure and
| maximize insurance.
|
| To use your tortured analogy: if my neighbor's house
| burned down, and he didn't buy fire insurance... I would
| be sad, but I don't exactly think it's my problem (or the
| government's) to pay to make him whole.
|
| > If startups were going under because it turns out that
| they were pointless and there was no market, and they ran
| out of runway... then sure.
|
| I know we all like to believe we control our own destiny.
| Tiny little inconsequential-seeming choices wobble
| startups between success and failure every single day.
| Having a good product is such a tiny piece of it all.
| jagraff wrote:
| But if your neighbor's house is currently burning down,
| you probably want the fire department to put it out
| before it spreads to your house...
| Jtsummers wrote:
| Which is what's being done. Insured amount going out on
| Monday, dividends based on liquidation of assets going
| out over time. The fire is being managed, it's not like
| nothing is happening here. People are just pissed that
| the government and FDIC are doing what they've said they
| would do instead of something more, which was never
| promised.
| flappyeagle wrote:
| People are worried about what this means for confidence
| in regional banks.
|
| The prudent thing to do _right now_ is to pull your money
| out of your regional bank and move it to a GSIB and call
| it a day. This endangers regional banks and concentrates
| deposits into the large players.
|
| You can stand your moral ground here or you can risk a
| string of bank runs and systemic collapse. It might not
| even make a difference anyways with how slow we've been
| to act.
| mlyle wrote:
| On the flipside, moral hazard is a real problem too.
| Setting the precedent that your regional bank can do
| whatever and you'll be just fine isn't great, either.
| mlyle wrote:
| Yup. The federal government should get a dividend out
| beyond insurance ASAP if the bank is not acquired. They
| say "next week", but it should really be Monday or
| Tuesday.
|
| And it's OK even to incur a little bit of
| risk/uncertainty when doing so.
|
| But this is different from bailing out all the depositors
| 100%.
| wrs wrote:
| I keep seeing this and I'm sorry, it's just silly. My
| 12-person startup gets a $10M series A and my first
| priority should be to find 40 banks to put it in? CDs
| don't work -- my job is to spend that money in the next
| 18-24 months, not save it.
|
| Edit: And the people saying the "CFO" should have done
| better...at that point, one person is probably still
| founder, CTO, CHRO, CFO, snack buyer, and janitor
| combined (been there).
| rkhacker wrote:
| Live and learn - now you know the risk involved and
| cannot escape by saying you did not know.
| dragonwriter wrote:
| > My 12-person startup gets a $10M series A and my first
| priority should be to find 40 banks to put it in?
|
| Your first priority should be to assure the safety of
| wherever you put it. Whether that is diversification to
| the point where all the funds are insured or inquiry into
| the finances of the institution where you plan on putting
| all the eggs, or a mixture of lesser diversification and
| diligence, it should be done.
|
| > my job is to spend that money in the next 18-24 months,
| not save it.
|
| Well, your _first_ job is to make sure that money is
| still there when you need to spend it, otherwise, you
| aren't going to be spending it.
| hugs wrote:
| "Find 40 banks" Sadly, that's your job now.
| Alternatively, I could imagine more VCs from now on will
| stop giving out the whole round in one wire. They'll
| start wiring money only in small traunches. You'll
| legally have claim to the whole $10M, but will be moving
| to a "just in time" system so you can make payroll. Or we
| could raise FDIC limit, but politically, that sounds
| untenable right now.
| MrMan wrote:
| yes startups are a rickety vessel and they usually fail,
| we shouldn't pay for that
| mlyle wrote:
| > My 12-person startup gets a $10M series A and my first
| priority should be to find 40 banks to put it in? CDs
| don't work -- my job is to spend that money in the next
| 18-24 months, not save it.
|
| You just ask your bank to place the money using IntraFi.
| You can get a little more interest by locking up some of
| the money on a 9-12mo ladder, which makes sense if you
| have 18 mos of runway.
|
| If you have an unanticipated expense or opportunity and
| need to spend some early, it's a small penalty to get the
| money out-- usually 6 months of interest, so as long as
| the probability of having to spend a bunch more is low
| you're ahead.
| ithkuil wrote:
| Sorry, dumb question, I'm just a software engineer:
|
| If it's so easy to get it right, why so many companies
| got it wrong?
|
| Could it be because startups don't usually start by
| hiring people with a lot of expertise in finance?
| mlyle wrote:
| I think people mostly just ignored the risk.
|
| Venture capitalists provide banking advice to the
| companies they fund, and this isn't on the list of things
| most mention. Now we're reminded why it's a best
| practice.
|
| I think it's hubris to think that you can have tens of
| millions of dollars and can ignore vital things with it
| (account security, systemic risk from counterparties,
| etc).
| itronitron wrote:
| Most startups aren't around long enough for it to be a
| problem.
| Gwypaas wrote:
| Remove the single point of failure in having one bank.
| Put the money not needed for day-to-day operations into
| short-term liquid government-based financial instruments
| like t-bills.
|
| If you still think the risk is too high, pay the premium
| for CDARs or insurance.
|
| It is not about removing all risks. It is about making it
| acceptable. If your primary bank fails, you can manage it
| like any other strategic business risk.
| wrs wrote:
| The risk of a top 20 bank failure is small compared to
| the myriad other existential risks being managed by a new
| startup. We still don't know if this new failure will
| even result in depositor losses (though for some reason
| HN is full of people who seem to _want_ them). I looked
| at the FDIC database and it seems depositor losses are
| quite rare.
|
| It would be great if VCs would provide simple cash
| management services to their fledgling investments,
| though.
| dragonwriter wrote:
| > The risk of a top 20 bank failure is small compared to
| the myriad other existential risks being managed by a new
| startup.
|
| Its small, but also easy to at least partially mitigate.
| mlyle wrote:
| > It would be great if VCs would provide simple cash
| management services to their fledgling investments,
| though.
|
| It was dirt simple to just use IntraFi. You just say you
| want it, and sign the form. If you want a little more
| interest income, you do some cash flow planning and check
| the box for laddering.
| wrs wrote:
| You do have to know it exists, though. Remember the CFO
| at this hypothetical startup is probably really good at
| Python, not treasury management. And later on if you need
| something like a revolving AR credit line, you can't use
| your IntraFi balance to collateraize that.
| mlyle wrote:
| OK, but one of the whole points of why you take venture
| money is to leverage experience and best practices. Our
| VCs introduced our bankers and suggested things we should
| do.
| Gwypaas wrote:
| Exactly, I do not want anyone to lose money, but the
| government should not step in and cover the haircut that
| may or may not happen. The insured limits are plastered
| all over the account when you open them. If you find them
| unacceptable, then solve the risk they impose.
|
| Thus, an easy prudent solution is to have a second bank,
| likely a "too big to fail bank", with emergency funds to
| cover the day-to-day until you can roll over to money
| locked into time-based investments or the system has
| worked its course on the first bank.
|
| In my personal finances, I have done that in housing
| deals going above the insured limit by immediately moving
| money into government-based financial instruments. Then
| as appropriate, I transferred that to my preferred
| investments and risk profile. If I, as a layman doing a
| once-in-a-decade housing deal, can manage it, then a
| startup can.
| [deleted]
| omginternets wrote:
| Many _did_ use multiple banks.
| mlyle wrote:
| Yup, and presumably they're a lot less worried. :)
|
| If you use multiple banks, you have a higher risk of
| experiencing a bank failure, but it has less of a
| consequence on your operations, liquidity, and viability
| if it should happen.
| closeparen wrote:
| Even if you have 10 banks, losing 10% of your working
| capital is a huge deal, no?
| mlyle wrote:
| Here, it's more like losing access to the amount of that
| is above $250k for some time, and _maybe_ losing 5-40% of
| that amount forever. So, (0.1 * x - 250000) * 0.4.
|
| So if you use IntraFi to place across 10 banks, and you
| have $10M, maybe you lose $300k.
|
| It is a risk... but there's plenty of ways to lose a few
| percent of your working capital that are out of your
| control.
|
| If you want to further reduce the risk, you could do
| additional things (e.g. buy some T-bills).
| omginternets wrote:
| Well, no. My employer for example was banking at SVB and
| FRB, in no small part because it was difficult for them
| do bank elsewhere.
|
| And there are many others in the same boat.
| shadowgovt wrote:
| It's more a demonstration that their house was always
| built on other people's largesse, and at the whim of
| those who hold the real power in the system (the money to
| invest) their opportunities can evaporate. A bank run
| doesn't happen without individuals deciding to go bearish
| and concluding that their own big-money dreams are really
| worth more than whether strangers they haven't met get a
| paycheck tomorrow. Something we've seen a lot of as of
| late it seems.
|
| Maybe building an entire society on a drastically slanted
| gap between the wealthiest and the least wealthy is
| actually super unstable and prone to failure?
| iguana_lawyer wrote:
| I don't see what's so hard to understand. Everyone else is
| one poor decision away from destitution. Why should you get
| special treatment?
| aeternum wrote:
| The proper call should be to increase FDIC insurance to 10mil
| or something then. It is incredibly unfair to be saying that
| depositors here deserve to be made whole because they are
| startup companies that somehow matter more to the economy.
|
| Everyone agrees that shareholders and bondholders should we
| wiped out. Everyone agrees that deposits under 250k can and
| will be made whole due to FDIC. The disagreement if there is
| one is the 250k+, why should there be an exception just
| because these are tech startups?
| idopmstuff wrote:
| I absolutely agree the FDIC limit should go way up.
|
| > The disagreement if there is one is the 250k+, why should
| there be an exception just because these are tech startups?
|
| That's not what I'm suggesting, nor is it what I think most
| people who think depositors should be made whole are
| suggesting. In basically any bank run scenario in which
| depositors had behaved reasonably (which is like 99% of
| companies putting their money in banks), I would support
| depositors being made whole. Regardless of the specifics of
| the situation, I think the upside of maintaining our
| collective faith that bank deposits are safe is much larger
| than the downside of whatever needs to be done to achieve
| that.
| m00dy wrote:
| Another thing to mention is that US Dollar is still world's
| reserve currency. Bailout (or government aids) could lead to
| unpredictable things. Last time Bitcoin was invented... This
| time I can't really imagine what would happen. Since entry
| barrier to Finance has became very low... Even I myself,
| became decentralised finance expert... I can't really imagine
| what would happen if this thing can't really managed well....
| anon291 wrote:
| > People here are effectively suggesting that I shouldn't get
| my paycheck and that the company I work for should lose most
| of its money because our CEO used a well-reputed bank?
|
| I'm in the same position as you but this is a terrible take.
|
| No one thinks we deserve to lose money or jobs.
|
| They simply do not believe that other American taxpayers who
| likely make less than you should have to spend their hard
| earned money (or risk having it devalued by printing) in
| order to bail you out.
|
| And they are broadly correct.
|
| It is wrong to demand other people's money due to your own
| misfortune, especially when the misfortune is a lost business
| or job, versus something more existential. The reality is
| that most tech workers will be fine.
| louloulou wrote:
| > the company I work for should lose most of its money
| because our CEO used a well-reputed bank
|
| Why should I lose my money because I bought the stock of "a
| well-reputed bank"?
| oldgradstudent wrote:
| > People here are effectively suggesting that I shouldn't get
| my paycheck and that the company I work for should lose most
| of its money because our CEO used a well-reputed bank?
|
| If you want to be paid by the government, you should be aware
| that salaries are significantly lower, and perks are non-
| existent.
|
| The government regulates banks and provides deposit insurance
| to to 250K.
|
| The whole point of deposit insurance is to prevent retail
| bank runs by the general public.
|
| Beyond that, it is the job of your CFO to manage risks,
| including the risk bank failure.
|
| The last large wave of bank failures happened barely over a
| decade ago. These things happen.
|
| Also, it sounds like your company will lose at most a
| fraction of its deposits.
| GenerWork wrote:
| >and perks are non-existent.
|
| I thought that government perks were a major way to attract
| people in order to make up for the lower pay (pensions,
| more vacation, etc).
| oldgradstudent wrote:
| These are more benefits than perks.
|
| Still, total compensation is way lower for most
| government jobs.
| throw0101c wrote:
| > [...] _because our CEO used a well-reputed bank?_
|
| I'm just a Regular Joe, and I have saving and chequing
| accounts at two banks in case there's an account discrepancy
| / disagreement with one, I still have some funds I can pay
| bills with until things get sorted out. Stuff happens:
|
| * https://en.wikipedia.org/wiki/2012_RBS_Group_computer_syste
| m...
|
| I also have a couple of hundred dollars worth of cash (e.g,
| in case of power outages).
|
| If you're a multi-million dollar operation, why do you have a
| single point of failure with regards to finances?
|
| (And this has nothing to do with 'deserve': if you play golf
| during a thunderstorm, would you be surprised if you got
| zapped?)
| rmilk wrote:
| Exactly this point. Every single offering brochure on those
| business checking accounts notes the FDIC limit. If they're
| interest checking accounts, they are money market backed
| and clearly state no guaranteed return rate or even
| guarantee of capital. Heck, even my not savvy mother knows
| to keep her money market retirement accounts in different
| banks just like you describe.
|
| How can we possibly allow the CFO of these companies to get
| away with not managing finance risk, no matter how small.
| That was their only job, to manage finance risk. No
| business continuity insurance? Lines of credit with other
| banks? Convertible instruments that could be sold on Monday
| AM to raise cash? So many other ways a CFO can manage cash
| and risk but did not.
| htag wrote:
| > They [shareholders] deserve nothing, because that's what
| you should end up with if you own stock in a company that
| goes bankrupt.
|
| During a bankruptcy creditors get paid first, and investors
| are only allowed access to what is left after creditors are
| paid off. Hopefully a company declares bankruptcy before
| their total liabilities becomes larger than their total
| assets, otherwise creditors cannot be paid in full.
|
| Bank bailouts were largely done so banking services are not
| disrupted. As valuable as SVB was to startups, it's small
| potatoes to what 2007/2008 bailouts prevented. "Too big to
| fail" clearly doesn't apply here.
| JackFr wrote:
| > But kill a bunch of startups because of their choice of
| financial institution? I just don't get where that comes
| from.
|
| Because you want to take my money, and your justification for
| wanting my money is simply "My company made a mistake."
| tracer17 wrote:
| How is it your money? It's not a taxpayer funded bailout,
| the FDIC is just going to forcibly liquidate SVB's assets
| and pay back customers to the extent possible with those
| proceeds.
| JackFr wrote:
| I assumed the parent was referring to a government
| sponsored plan to make SVB depositors whole beyond
| ordinary FDIC receivership.
| jtr1 wrote:
| How are they taking your money?
| JackFr wrote:
| FDIC receivership is not my money, it's all self funded.
| Any bailout beyond that is taxpayer money. As a voter
| (and a guy who pays taxes) it is my money. I have a lot
| of opinions about how that money should be spent.
|
| A bailout beyond FDIC receivership is simply a payout to
| VCs. SVB's resolution will be a solid measure of much
| political clout they have.
| auntienomen wrote:
| It's a noisy measure, since FDIC / Fed / Treasury are
| quite reasonably worried about this failure setting off a
| series of bank runs.
| [deleted]
| mcculley wrote:
| > kill a bunch of startups
|
| I don't see this as a fair statement. There is a difference
| between killing a startup and letting it die.
|
| Zero interest-rate policy allowed for the creation of
| investors and startups that never had to think about the
| realities of managing cash.
|
| Using FDIC insurance to keep them afloat is acceptable.
| Anything beyond that is silly.
| shjake wrote:
| It seems that SVB had enough assets cover 80-90% of all
| depositors regardless if they fall under the FDIC limit or
| not
| tsimionescu wrote:
| First of all, even if the company you work for goes bankrupt,
| you're very likely to still receive your salary, as debts to
| workers are the highest priority in any bankruptcy case. So
| the risk to workers' livelihoods is being way overblown. Of
| course, if a substantial amount of your compensation was
| company stock, you may lose a lot on that, but that is par
| for the course with stock.
|
| Second of all, the purpose of having a limit to FDIC insured
| deposits is to limit the government's liability in case of
| bank failures to small-ish depositors. A company thag has
| millions of dollars to deposit also has more responsibility
| to evaluate the bank they are depositing in. Perhaps they
| shouldn't keep money in the bank in the first place, but find
| other uses for them.
|
| Note that the true FDIC insurance limit is much larger than
| the 250k that usually gets cited - since there are various
| facilities for business accounts which can take that up to a
| million $ or more (multiple signers on the same account,
| multiple types of accounts). Should be plenty for most
| startups to pay their employees' salary outright, even
| without going bankrupt.
| idopmstuff wrote:
| I'll probably get my next paycheck or two, but I'll lose my
| job. You're pretty clearly saying here that I should lose
| my job, along with many other people, because of the bank
| at which my company's cash is stored.
|
| > Perhaps they shouldn't keep money in the bank in the
| first place, but find other uses for them.
|
| I work at a small startup that's raised five million
| dollars. Not a huge amount of money, but obviously losing
| all but 250k would be extremely damaging. You're talking
| about concepts of fiscal responsibility here, but then
| you're suggesting that businesses should deploy virtually
| all of their cash and keeping close to nothing in reserve.
| Our founders are extremely fiscally prudent and purposely
| keep a very low burn rate, which is exactly why that money
| is in the bank instead of being used elsewhere.
| youngtaff wrote:
| The company is unlikely to lose all but $250,000 as SVB
| (reportedly)still has plenty of assets it's just some of
| the bonds they hold are under water due to interest rate
| rises
|
| You should question why $5mn was kept in a normal bank
| (with an unusual customer profile) rather than being
| placed in money market funds etc., or why the company
| didn't insure the funds above $250,000
| anon291 wrote:
| You do not have a right to a job at the taxpayers
| expense. We all feel for you and are rooting for the
| workers but no one has an inmate right to others money.
| Especially when the right being demanded is size figure
| salaries.
|
| If you were to lose your job, there is a standardized
| insurance that kicks in that all Americans get.
|
| You are demanding special, better treatment at the tax
| payers expense.
|
| Look, everyone on this forum is going to be affected by
| this. I myself was laid off a few weeks ago due to the
| tech bubble.
|
| It's still not right to demand other people's money and
| act entitled. We all get it's hard out there right now.
| treis wrote:
| This is a red herring though. Your company isn't losing
| 4.75 million. They're likely going to lose 0-10% of that.
|
| The actual question is should tax payers give a company
| that has ~4.5 million in cash and is worth some multiple
| of that some free money? And that should be an emphatic
| no.
| logichurts wrote:
| [dead]
| FartyMcFarter wrote:
| I'm not sure your founders are as "extremely" prudent as
| you claim them to be. For example, couldn't they have
| spread their funds throughout more banks instead of
| putting their eggs in one basket?
| pbourke wrote:
| Would you suggest that every small business in the US
| with working capital over the FDIC limits do something
| like this? It would be a massive waste of resources. FDIC
| insurance exists to stabilize this part of the financial
| system.
| lotsofpulp wrote:
| > FDIC insurance exists to stabilize this part of the
| financial system.
|
| Up to $250k per account holder per bank.
| pbourke wrote:
| Yes, that is the letter of the law. The intent, given
| that the FDIC emerged from the Great Depression, is to
| prevent bank runs.
|
| Most banks with a large retail deposit base are immune
| from bank runs. SVB is unique in that it didn't have a
| large retail deposit base yet also had a bimodal customer
| distribution (financially sophisticated VCs and later-
| stage startups/enterprises and early stage startups which
| have the financial sophistication of your local auto
| mechanic).
|
| No acquiring bank will want to touch SVB because of its
| lack of retail deposits - the risk of account holders
| fleeing at the earliest opportunity is very high. That
| forecloses one of the FDIC's main tools for resolving a
| bank collapse - especially one of this magnitude.
|
| So we have a very unique situation here: a large mostly
| commercial bank that, unlike most large commercial banks,
| has a bunch of mom-and-pop level customers.
|
| I don't know what the solution is, but hopefully it will
| go in the direction of minimizing impact on these small
| businesses.
| rmilk wrote:
| There is a risk question that companies are responsible
| for that I see is glossed over. No, you shouldn't have to
| spread your business accounts to limit them to 250k. But
| you must know it's not insured above this, just like a
| money market account is not a guaranteed rate of return
| or even guaranteed against capital loss. Have lines of
| credit with alternate banks, or insurance on that
| additional money.
|
| Or, just like when the market tanks, you suck it up and
| get back 80% of your capital on deposit because you
| couldn't foresee a money market checking account could
| lose capital even though it's spelled out on EVERY SINGLE
| statement and offering letter from the bank.
| FartyMcFarter wrote:
| Yes, I would definitely suggest and recommend for
| businesses to not have a single point of failure for
| something as important as their working capital.
| masterjack wrote:
| Are you really suggesting they open up 20 different bank
| accounts? And not only pay the monthly account fees but
| also pay a bookkeeper to upload statements for all 20
| banks into the accounting system? And have appropriate
| controls on all money movements? And float money between
| the accounts each time payroll or some large expense is
| run? And follow the financial results of all of those
| banks in order to find signs of weakness?
|
| Id rather be in a world where businesses don't have to
| spend so much time playing games with their bank accounts
| and just trust that their money is safe, which is why the
| fdic needs to guarantee the deposits.
| FartyMcFarter wrote:
| > Are you really suggesting they open up 20 different
| bank accounts?
|
| No. I said that putting all the money in one bank account
| is not extremely prudent, which seems obvious given the
| circumstances.
|
| I'm pretty sure that there are individuals paying
| attention to this, so I don't think it's too weird to ask
| businesses to do so as well.
| shadowgovt wrote:
| That sounds like just another cost of doing business.
|
| Companies RAID-stripe the data on their hard drives, they
| can pay somebody to spread the risk in their finances.
|
| (At a certain scale this eventually becomes inevitable.
| Google actually has a huge real estate and finances arm
| precisely because they have the kind of money pool that
| is impacted by things like nation-state failure and
| changes to the tax code in 50 states).
| QuercusMax wrote:
| Services like this exist:
| https://www.investopedia.com/terms/c/certificate-of-
| deposit-...
| rugaeiou wrote:
| Just search for insured cash sweep accounts
|
| There are many many banks that offer this . It doesn't
| even have to be a TBTF Bank
|
| Infact, SVB itself offered and those funds are protected
|
| https://pilot.com/blog/svb-faq
|
| What about my cash sweep account? So, here's the good
| thing about the cash sweep account: the assets held in
| the cash sweep account aren't bank deposits or on SVB's
| balance sheet--they're held by a third-party custodian.
| So our understanding is you should be able to recover
| 100% of the funds there, regardless of what happens to
| the uninsured deposits at SVB.
| klipt wrote:
| > And follow the financial results of all of those banks
| in order to find signs of weakness?
|
| Well no, if all your deposits are below the 250k fully
| insured limit, then you _don 't_ have to worry about the
| banks collapsing.
| idopmstuff wrote:
| So anybody who raises money should put a max of 250k into
| any given bank? My CEO should spend his time managing 20
| different bank accounts?
|
| I just think that if we look at it from the big picture -
| what's best for the country/society/etc. - that we're
| collectively much better off if a business that puts its
| money into a decades-old, reputable financial institution
| can count on it being there the next week.
|
| (Also I do feel like I should clarify that I'm using my
| company as a kind of general example... I have no idea
| where our money is stored and I'm on paternity leave at
| the moment so just going to hang out with my new kid and
| hope this all works out).
| QuercusMax wrote:
| There are services that will spread balances across tons
| of accounts. The problem is that YC made people keep all
| their startup's money only in SVB instead of spreading it
| around.
| eldritch_4ier wrote:
| YC doesn't make you keep your money anywhere, they don't
| even suggest any place or even say anything about startup
| banking (unless you were to ask one of the partners for
| advice). Even a cynical take would suggest they'd
| prioritize their portcos who launched banks for startups
| (like Brex), but even still in my experience they haven't
| even done that.
| QuercusMax wrote:
| According to Ankit Parasher, Co-Founder of YC-backed
| fintech start-up SALT, "SVB was the default bank for any
| international start-up expanding operations to the US. It
| was a stable bank and most VCs recommended it, so the
| impact of SVB failure is expected to be even larger than
| just Indian SaaS companies and YC-backed start-ups."
|
| From
| https://www.thehindubusinessline.com/companies/indian-
| saas-a...
| yibg wrote:
| From an insurance perspective, why is it ok to guarantee
| payment to 20 x $250k but not $5mm? From a payout
| perspective the amount is the same, is it just the single
| point of failure risk?
| ISL wrote:
| That's the idea. One bad management decision doesn't take
| down all the capital.
| yibg wrote:
| But in terms of socializing the risk it works out the
| same. There is no difference between paying a company
| back $5mm or 20 companies 250k each.
| michaelmrose wrote:
| Do you think most entities socialize the cost of their
| finances by just dividing up millons to billions between
| infinite banks and customers of this bank are the only
| ones not doing this? This seems unlikely. What you are
| proposing would obviously cost more money in practice
| else it would make no sense for you to propose it.
|
| Lets take it another way. Why not limit FDIC insurance
| such that its harder to stack them and derive more
| benefit?
| idopmstuff wrote:
| But is that a good thing for society? Adding a rent-
| seeking middleman that doesn't actually contribute
| anything except a technical workaround for an issue that
| can be solved directly by the governemnt?
| scottLobster wrote:
| It's called risk management, it costs money and it's
| something anyone running a business should be familiar
| with. Don't run your company like a multimillion dollar
| lemonade stand.
| gamblor956 wrote:
| _My CEO should spend his time managing 20 different bank
| accounts?_
|
| No, that's silly, and it's not standard practice for a
| business to have more than 1-2 accounts _per country._
| Anyone here claiming their companies actually did that is
| just trying to earn internet points for something they
| didn 't actually do.
|
| It's absolutely not believable that guys on here are
| claiming that they founded "multiple startups" and had
| 10-20 bank accounts (or more) because they were hedging
| the risk of bank failure. It would be like someone saying
| they had 10-20 computers at home because they were
| worried about their CPU failing. It's so remote a risk
| that it's not something you fuck up your finances to
| hedge.
|
| A finance dept is absolutely not going to put up with the
| BS and hassle associated with maintaining more than 3-4
| active bank accounts (checkings, savings, and one or two
| interest-earning accounts such as a cash sweep that might
| not be covered by FDIC insurance), because there is a
| large time and financial cost to constantly moving money
| around to pay the bills. This practice also replaces the
| extremely small risk of bank failure with the much
| greater risk of embezzlement, misplaced funds, delinquent
| payables, and lost receivables.
|
| The only way to safely store money in excess of the $250k
| threshold is through government bonds, with the selection
| of terms based on the forecasted liquidity needs of the
| business. The other options suggested here (like sweep
| accounts) aren't any better than FDIC-insured accounts,
| because in most cases the alternatives aren't insured at
| all.
| moomoo11 wrote:
| should have put it into gold right?
| grugagag wrote:
| Apparently they did that on purpose to be better able get
| a view on the activity of the money they poured in.
| Someone on a different thread is pointing to the levers
| VCs had in SVB for this exact purpose.
| rmilk wrote:
| Exactly. If you're forced to use SVB because of your
| founders, you don't have a recourse on the bank.
|
| But there is also a risk question that companies are
| responsible for that I see is glossed over. No, you
| shouldn't have to spread your business accounts to limit
| them to 250k. But you must know it's not insured above
| this, just like a money market account is not a
| guaranteed rate of return or even guaranteed against
| capital loss.
|
| I'm just spitballing, but for example what was the rate
| on a "money market" checking at SVB versus other larger
| national banks? If it was much higher, it immediately
| indicates higher risk in a business checking account at
| SVB to get those rates. You can see this way back with
| the old junk bond / Lincoln Savings fiasco of the 1980s,
| or with 2008 MBS, or CD accounts in early 2000s.
| hgsgm wrote:
| > forced to use SVB because of your founder
|
| Investor not founder.
| dehrmann wrote:
| > So the risk to workers' livelihoods is being way
| overblown.
|
| If the company you work for suddenly goes bankrupt, you're
| much more concerned about finding yourself unemployed in a
| not-great tech job market than collecting your last
| paycheck.
|
| Don't forget how systemic this is. If your company goes
| bankrupt, it's likely a lot of similar tech companies also
| went bankrupt.
| phamilton wrote:
| > So the risk to workers' livelihoods is being way
| overblown
|
| If this were 2015 I would agree. But it's 2023 and
| thousands of software engineers are already struggling to
| find work after layoffs. Companies shutting down en masse
| because of SVB will soften what is already an employer's
| market for talent.
|
| This may hurt specific founders and VCs a lot, but total
| damages (in the form of a softer market for engineers) may
| hurt the average employee more, even if they aren't
| directly affected.
| mixologic wrote:
| You get your last paycheck, sure, but you still lose your
| job which is definitely a threat to workers lively hoods.
|
| It's even more of a threat if the whole sector you're
| employed in suffers simultaneously, as it becomes difficult
| to continue to be employed in that sector.
| JackFr wrote:
| I say as a person who's been laid off twice and worked
| for a company that went bankrupt -- why is that my
| problem?
|
| Why should you get my money?
|
| (In the case of the company I worked for which went
| bankrupt -- we were a fintech startup with a truly
| innovative and fantastic product. Our management made
| three bad decisions which led to our demise. Two were
| technical and would have been recoverable, the last was a
| strategic move which ultimately proved disastrous.)
| ordinaryradical wrote:
| Because you don't make depositors responsible for banks'
| mismanagement unless you intend to create a depression.
|
| Are you truly proposing that every time a bank fails we
| make everyone who kept money there take the hit?
|
| A return to the 1920s, eh?
| ryanwaggoner wrote:
| Why do you think the FDIC insurance limit is $250k
| instead of $250mm, or infinite?
| ordinaryradical wrote:
| I will answer and you can answer this question:
|
| Why is the government involved beyond that limit in this
| case? Could it be they want to give the average person
| peace of mind while retaining the flexibility to handle a
| restructuring however they deem best?
| freeone3000 wrote:
| Because the bank continues to have assets, and those
| assets will be dispersed to cover depositors.
| paulclinger wrote:
| It's because there is a cost associated with this
| insurance. It's not a bottomless pit of money, as FDIC
| pays out using the funds it collects from the participant
| banks and receives no funding from the government (https:
| //en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...
| ). I think it should be possible for the bank to get
| better coverage, but they should be paying much larger
| premium if they want insurance up to 250mm instead of
| 250k.
|
| I also think that similar to "FDIC insured" labels in
| bank branches, FDIC should require posting "13% of
| deposits are FDIC insured" to help assess risk for those
| clients that have uninsured funds.
| rmilk wrote:
| Exactly. I got a letter from my last startup Thu at 11pm
| telling us they had no cash for payroll tomorrow and we
| were all laid off. Poor planning along with super-lean
| cash flow broke my employer.
|
| This is no different. For example, how many business
| checking accounts are backed by money market funds to get
| a little interest on them? Clearly states in offerings
| that rates aren't guaranteed and you could even lose
| capital. Same with the $250k FDIC limit - clear risk with
| zero forethought from these employers of hedging it with
| lines of credit, payroll/business continuity insurance,
| etc.
|
| Those are things "slow" companies do, not move fast and
| break things companies do (sarcasm intended - I have
| worked in R&D in both types multiple times).
| TrispusAttucks wrote:
| That definitely sucks but why should Americans who had
| nothing to do with the bank or sector fork over public
| tax dollars to provide a soft landing?
| [deleted]
| mulmen wrote:
| Because it minimizes harm and stabilizes the economy.
| There are benefits to providing safety nets to people who
| didn't have a hand in their own misfortune. Specifically
| those people get to continue providing value. The modern
| economy is not zero sum. Work _creates_ value, it is in
| everyone's interest to stabilize productive workers.
| TrispusAttucks wrote:
| Your statement is out of touch with most American
| workers. Especially blue collar.
|
| Subsidize my class on the backs of the underclass.
|
| Let's solve the wealth inequality gap with more wealth
| inequality.
| mulmen wrote:
| The owners of the bank aren't being bailed out. The FDIC
| is only paying back depositors. That _is_ the working
| class. This bank doesn't just cater to big bad VCs.
|
| When depositors lose their savings through no fault of
| their own the whole system comes crashing down. That
| won't help blue collar workers.
| tsimionescu wrote:
| If things get dire enough, the government can intervene
| to protect workers in various ways (unemployment
| benefits, emergency housing, government employment -
| there are many options).
|
| No need to prop up the middlemen with free insurance.
| CharlieDigital wrote:
| > with free insurance
|
| Taxpayer funded insurance.
|
| What I wonder here is how many SV CEOs and VC partners
| are down with Biden's proposed hike on the capital gains
| tax rate.
| grugagag wrote:
| None. They want it all at no cost. Should greed be
| fullfilled this one time around, then it's guaranteed to
| happen again in a different shape or form
| ipython wrote:
| Not exactly taxpayer funded:
| https://www.fdic.gov/resources/deposit-insurance/deposit-
| ins...
|
| > The DIF is funded mainly through quarterly assessments
| on insured banks. A bank's assessment is calculated by
| multiplying its assessment rate by its assessment base. A
| bank's assessment base and assessment rate are determined
| and paid each quarter.
| CharlieDigital wrote:
| Not sure if that's going to cover the haircut that
| depositors are going to take with respect to the
| difference in SBC's asset values at liquidation. There is
| surely going to be some gap and the question is should
| the taxpayers be on the hook for that gap to make the
| depositors whole.
| anon291 wrote:
| Unemployment insurance is already available. California
| and all the west coast states at least will also give
| free insurance in many cases. There is little risk to
| being unemployed especially for a short term while
| employees slowly get their money back after the asset
| sales.
|
| I don't really see the big problem here.
|
| Svb still has substantial assets. In the coming weeks,
| they will be sold and solid portions of the money
| returned. If companies have to temporarily furlough
| people, they will still get a reasonable wage that most
| Americans live on.
| mym1990 wrote:
| Where do you propose a company with millions in cash keep
| that money if not a bank?
| mostertoaster wrote:
| I want my company to have a giant vault stacked with
| Benjamin's.
|
| Every payday I come down and they shell it out and put it
| in my hand.
|
| Then a disgruntled but genius employee comes up with a
| crazy heist scheme and I get caught in the middle of it
| getting my pay one payday.
| oarabbus_ wrote:
| Mostly treasury bills, some foreign currencies, and a
| small allocations to index funds probably.
| dkga wrote:
| Multiple banks. There's one thing called counterparty
| risk and any firm with millions (or more) of US dollars
| in cash should have a function just to take care of this.
| But it seems a lot of tech firms' CFOs were sleeping at
| the wheel if it indeed transpires that all these firms
| were keeping their money all in one bank.
| tsimionescu wrote:
| If the company is large enough to need to hold millions
| in cash, multiple banks would be the simplest response.
| tome wrote:
| My first suggestion would be as T-Bills. I've asked a lot
| of questions on HN in the past few days about this, and
| I'm still not sure why it was not standard practice. Why
| people in position of authority trust bank deposits after
| 2008 I do not understand.
| roflyear wrote:
| If you're spending $500k a month on payroll it doesn't
| make sense to do that.
| StopHammoTime wrote:
| It absolutely does. You should have 3 months of cash in
| the bank always. The rest should be in cash equivalents
| or short term investments. This is why most company's
| with payrolls like that have a person called a "Treasury
| Officer" who manages all that and makes sure the bank
| accounts are funded adequately. They should also spread
| that around between banks to ensure that in the case of
| an issue with one facility there are other facilities or
| lines of credit to cover short term needs.
|
| Anybody with more than $5 million in the bank should have
| someone dedicated to managing that money. If you don't,
| then you're not running a business properly. Startups
| like to skimp on important things like that and they
| shouldn't. Any CFO with basic skills should be doing or
| arranging this depending on the size of the company.
| That's literally their job.
| rmilk wrote:
| Exactly. Even a business checking account with interest
| is backed partly/fully by money market funds. Those ALL
| come with offering sheets clearly spelling out returns
| aren't guaranteed AND you could lose capital.
|
| It's simply poor money management by the employer to
| assume you can toss $1M-$5M in a business checking
| account and have zero risk. It's not a personal account
| and it is clearly over the FDIC limits.
|
| Anyone with $250K net worth knows there is risk here.
| Even my 80+ mother who is NOT finance savvy knows about
| this $250k limit and manages her life savings in
| different money market accounts to limit her exposure.
| jasode wrote:
| _> My first suggestion would be as T-Bills. [...], and
| I'm still not sure why it was not standard practice. _
|
| Corporations have always split their cash into cash and
| "almost-cash-equivalent" liquid assets (like Treasury
| Bills). E.g. one can read any random 10-k corporate
| filing and there will be a line item for short term
| assets like "T-bills" because companies like to earn
| interest on their excess cash. The corporate treasurer is
| responsible for managing that mix.
|
| But a company still needs working cash in the bank
| account for payroll and to pay vendors. The smaller
| startups may have not have enough excess cash to bother
| with splitting some of it into T-bills.
| tome wrote:
| > a company still needs working cash in the bank account
| for payroll and to pay vendors
|
| I also don't understand this. Why can't the working cash
| be a loan from the bank secured on the T-Bills? Then the
| depositor bears essentially no risk because they have no
| net balance with the bank. Essentially, why can't
| companies' working cash be overdraft? That way it's the
| bank that bears the risk rather than the companies.
| That's the whole point of the bank!
|
| I guess one downside is that the bank will apply higher
| funding charges for that kind of arrangement. Well, the
| depositors should suck it up. You have to pay a price for
| resilience.
|
| I guess there are other fine points of corporate finance
| that I have yet to grasp, but I'm learning a lot from the
| comments on HN. Thanks for your reply.
| piva00 wrote:
| If everyone gets cash from loans, who'll be the
| depositors putting cash in the bank to be loaned?
| JumpCrisscross wrote:
| > _who 'll be the depositors putting cash in the bank to
| be loaned_
|
| Loans create deposits, not the other way.
| kgwgk wrote:
| Increasing the need for reserves, which banks acquire
| usually via deposits.
| tome wrote:
| But not increasing it as fast as the loans increase.
| tome wrote:
| But not increasing it as fast as the loans increase,
| hence, _fractional reserve_.
| kgwgk wrote:
| If the fraction was to stay constant deposits would
| increase as fast as loans.
|
| In fact the problem of the US banking system in the last
| years has been that deposits have been increasing much
| faster than loans.
| tome wrote:
| > If the fraction was to stay constant deposits would
| increase as fast as loans.
|
| In relative terms yes, in absolute terms, they'd be
| lower.
|
| > the problem of the US banking system in the last years
| has been that deposits have been increasing much faster
| than loans
|
| Yes, it seems to be. "Too much money chasing too few
| returns", as they say.
| kgwgk wrote:
| > In relative terms yes, in absolute terms, they'd be
| lower.
|
| Not really. The Loan-to-Deposit ratio is usually lower
| than one so if both double that means that deposits grow
| more than loans in absolute terms.
| tome wrote:
| Yeah, that's my misuse of the term "deposit" where I
| meant something like "total reserve amount".
| tome wrote:
| Loans are not made from deposits even now. But you may
| well be right that there are operational details that
| make my idea impossible, I don't know. HN seems to have
| some people with understanding of corporate finance, so
| hopefully they'll be able to educate me.
| chernevik wrote:
| I think there are a variety of products reducing cash
| risk to zero. Something like t-bill positions for
| overdraft protection might be one such.
|
| But notice that it's not in the bank's interest to
| provide them or push them if they do. They would rather
| you trust them and provide them the cheap float.
| tome wrote:
| Yeah, this seems to be what I'm learning from https://twi
| tter.com/WallStCynic/status/1634901599423197191
|
| Perhaps some near-fraudulent collusion between SVB, VCs
| and the executives of the banked startups then ...
| chernevik wrote:
| I think the story of the relationships between SVB and
| the VCs would be fascinating.
|
| Less so the executives, who probably did largely as their
| investors advise. Their individual business probably
| isn't that important on its own.
|
| It's the VC partner who sees to it that 10 portfolio
| companies a year drop their capital raise into cheap
| deposits who really mattered.
| tome wrote:
| That thread seems to be insinuating that startup
| executives were offered mortgages in return for keeping
| their treasury as deposits in SVB. If so that sounds like
| a massive violation of fiduciary duty. (I don't have any
| concrete evidence of this and I'm just going by one
| Twitter thread I've read, so take with a mountain of
| salt.)
| querulous wrote:
| i don't think it's as nefarious as that
|
| the issue is that startup founders might have a lot of
| implied wealth based on the equity they hold and money
| raised but a "mainstream" bank is going to look at that
| equity, assess it as non-liquid and highly speculative
| and reject any loan applications
|
| svb was more likely to extend personal loans to startup
| founders because -- in theory at least -- they better
| understood startup finance and they were incentivized to
| provide good service to prospective customers of their
| more business focused activities
| tome wrote:
| Yes, that makes sense. Perhaps I was too cynical.
| kgwgk wrote:
| > Loans are not made from deposits even now.
|
| But banks have more deposits than loans even now. Because
| they need to get money from somewhere.
| tome wrote:
| No they don't, because the banking system is fractional
| reserve. Pretty much every bank has more outstanding
| loans that deposits (even if part of those loans is to
| the government).
| kgwgk wrote:
| Can you point to a bank with more loans than deposits in
| its balance sheet?
|
| (Honest question, I'm curious.)
|
| As far as I can see the banking system in aggregate has
| more deposits than loans:
|
| https://www.federalreserve.gov/releases/h8/current/defaul
| t.h...
| tome wrote:
| Thanks, I think there's something faulty in my
| understanding of terminology. By "deposits" I was
| understanding "deposits backed by holdings at the central
| bank".
|
| The original question I was trying to answer was "If
| everyone gets cash from loans, who'll be the depositors
| putting cash in the bank to be loaned?". I just don't
| think that question is well-posed. A bank creating a loan
| requires new cash deposits of only R x loan_amount, where
| R is the reserve requirement. For making payroll this
| ought to be almost nothing.
| kgwgk wrote:
| > By "deposits" I was understanding "deposits backed by
| holdings at the central bank".
|
| Ok. That would be reserves. But it's not like some
| deposits are backed and others are not (leaving aside the
| existence of different kinds of deposits) - what you have
| is a total amount of deposits and a total amount of
| reserves.
| tome wrote:
| Yes, I understand that. But I don't understand why we
| couldn't have a system whereby, to cover payroll, a bank
| creates a loan to each company every payroll day,
| transfers cash to the (FDIC insured) bank accounts of
| employees, and then liquidates some of the company's
| T-Bills over the next couple of hours or days to cover
| it. That seems like a way of making sure everyone's paid
| without companies having to risk > $250k balances at any
| time.
| ckdarby wrote:
| Uneducated in this space, but why don't we see more
| T-Bill ownership transfer?
|
| I owe vendor $100k. I transfer $100k of T-bills. They are
| paid cash equivalent, no?
|
| The obvious thing that comes to mind is I am guessing
| there is some lockup of those t-bills maturing? Wouldn't
| this make sense for the Fed (Or some government entity)
| to be the broker+last resort to allow conversion of
| t-bill to someone else at a cost of breaking the term?
|
| Even though the t-bill itself would still exist until
| maturity on the Fed's side and now company A is able to
| always guarantee payment transfer.
| NordSteve wrote:
| T-bills are super liquid, have a low bid-ask spread, and
| are cheap to turn into cash, so there's no real need for
| a barter system in t-bills.
| mcculley wrote:
| It is standard practice for many businesses. Managing
| cash is a tedious reality that most have not had to face
| thanks to zero interest-rate policy.
| dehrmann wrote:
| What if there were _companies_ that would manage cash for
| you?
|
| In all seriousness, you don't want small and mid-sized
| companies having to think about managing their cash. They
| have better things to be doing.
| mcculley wrote:
| What I want is irrelevant. Yes, there are companies
| (banks) and instruments that I use to help manage cash. I
| know that every time I have too much cash in one bank
| account, I am at risk. It appears some companies are
| learning this only now.
|
| I managed cash flow of my business through 2008. I worked
| through the recessions in the 90s and 2000s. When I was
| young, I worked for an employer who had seen banks fail
| in the Great Depression. He taught me not to trust a
| single bank. Nobody should.
|
| Yeah, it would be nice if we had a well regulated
| financial system.
| grey-area wrote:
| Isn't that exactly what SVB did?
|
| (EDIT - see replies below for why it is not)
| tome wrote:
| No, SVB invested in long term T-Notes or T-Bonds, not
| short term T-Bills. T-Bills have _much_ less interest
| rate risk, because they have a maximum 52-week term.
| grey-area wrote:
| Thank you, sorry I was not familiar with the diff between
| T-bills and T-Bonds, now I know!
| Jtsummers wrote:
| From what's been reported, SVB had money tied up in
| mortgage backed securities and T-Bonds (not bills) which
| take years to mature.
|
| T-Bills are different than T-Bonds. T-Bills mature in
| weeks up to 1 year (4, 8, 13, 26, 52 week terms). They're
| a good way to assign your money you can't risk (like next
| month's payroll) while still earning interest on it and
| having access to it when you need it.
| grey-area wrote:
| Thanks
| Analemma_ wrote:
| > Perhaps they shouldn't keep money in the bank in the
| first place, but find other uses for them.
|
| If this is the position you want to take, that's fine, but
| you need to own the consequences of that position. The
| point of the FDIC is that you don't have to worry about the
| credit-worthiness of your bank before deciding to do
| business with them. If that's not true anymore, then I'm
| pulling every dollar out of my local bank and giving it all
| to Goldman Sachs. Everyone else will do the same, and now
| you've destroyed small regional banks and make the biggest
| ones even bigger and more powerful. Was that worth it to
| "own the techbros"?
| dehrmann wrote:
| There's something the airline industry does where they
| don't compete on safety. They're all safe. You don't want
| banks to start competing on safety; they should all be
| safe.
| ekidd wrote:
| No normal bank is safe without government backing.
|
| Banks are inherently vulnerable to bank runs, because
| they work with money across different time intervals. For
| example, a hypothetical small town bank might turn
| checking and savings accounts into mortgages. If everyone
| decides to withdraw their savings all at once, the bank
| can't call all the mortgages due. So if everyone panics
| all at once, banks will fail. So we try to regulate the
| risks taken by banks, and we provide government-backed
| insurance. To be honest, the last-ditch "insurance"
| behind most banks is sovereign power.
|
| It has been a long time since companies have lost money
| in bank failures. Everyone has gotten complacent.
|
| The failure of SVB means that a great many people are
| suddenly seeing new risks. Come Monday, I expect to see
| lots of companies moving funds. And _lots_ of banks hold
| government bonds that have fallen substantially in value
| because of the rapid changes in interest rates.
|
| I will be very happy if we get out of this with few bank
| failures.
| i_love_cookies wrote:
| Well I'm not getting paid the entire team was essentily
| furloughed (~25 ppl)
|
| No idea what's going to happen with insurance since some
| people were expecting
|
| I'm generally treating it as being laid off with no
| severance and looking elsewhere
| tsimionescu wrote:
| I'm sad to hear that, but by all accounts you should be
| able to receive your salary on Monday, when at least
| $250k should become available to your employer (though
| hopefully significantly more).
| cowsandmilk wrote:
| At plenty of companies, 250k is not enough to make
| payroll.
| JumpCrisscross wrote:
| > _250k is not enough to make payroll_
|
| Plenty of firms will buy the uninsured deposit claims at
| a discount. Taking the haircut to make essential payments
| is worth avoiding disruption.
| dehrmann wrote:
| For 25 people making $200k, you get _maybe_ one payroll
| run out of $250k.
| tsimionescu wrote:
| Sure, but the actual amount should be significantly more
| (a comment around was saying that any account secured
| with two signatures is ensured up to 500k, for example).
| And, it should be enough for the mid-month payroll of a
| 25-person team, which is the kind of company GP was
| talking about.
| mustache_kimono wrote:
| > even if the company you work for goes bankrupt, you're
| very likely to still receive your salary
|
| Spoken like someone who has no experience with bankruptcy.
| The rule of thumb used to explain this to an unsecured
| creditors, before this happens, is -- dude, you might get
| 10 cents on the dollar. Employees are rarely made
| completely whole.
|
| > as debts to workers are the highest priority in any
| bankruptcy case
|
| Secured creditors have to get paid first. Then after quite
| a few other priority claims (attorneys, trustees must be
| paid, domestic support, etc.) employees are paid.
| [deleted]
| steve76 wrote:
| [dead]
| matheusmoreira wrote:
| It's likely startups only exist to begin with due to low
| federal interest rates. It is obvious that if those rates are
| low investors will look elsewhere. Startups are one of those
| elsewheres. Now that rates are on the way up, there's no need
| for investors to risk their money on startups anymore. So
| startups no longer have one of the pre-conditions for their
| existence. Namely, free investor money literally pouring in
| and paying for all their expenses.
|
| Such is life in the free market. Looks like the US government
| disrupted you. Doesn't mean the US taxpayer has to bail you
| out.
| theRealMe wrote:
| This is the exact lack of nuance that OP is talking about.
| Do you understand what is actually happening here? A bank
| is going under and potentially taking a ton of startups
| with it, not because of any poor decisions or lack of legit
| business model by the startups. It's purely due to an
| internal implementation detail of the (until now) we'll
| respected bank that holds their money.
|
| I swear if it was called "generic bank" instead of "Silicon
| Valley Bank", we wouldn't be seeing all of these knee-jerk
| "good because they're bad" responses.
| youngtaff wrote:
| Putting the money in SVB rather than another bank can be
| seen as a poor business decision by the startups - yes,
| they may have be forced to by their VC backers, or they
| may be just following the crowd
|
| But reality is SVB isn't a normal bank and it had the
| highest percentage of deposited funds that weren't
| covered by FDIC amongst US banks
| matheusmoreira wrote:
| > Do you understand what is actually happening here?
|
| Do you have an actual argument that falsifies what I've
| said? I'm all about owning up to my mistakes but right
| now I have no reason to believe I'm being stupid. I
| thought stuff like this was going to happen the second I
| saw the Fed raising interest rates to combat inflation.
| Looks like time proved me right.
|
| > A bank is going under and potentially taking a ton of
| startups with it, not because of any poor decisions or
| lack of legit business model by the startups. It's purely
| due to an internal implementation detail of the (until
| now) we'll respected bank that holds their money.
|
| Yeah sure. A "minor implementation detail" of the bank...
| Honestly, this isn't even the real issue at play here.
|
| It's really simple to me. People put their money in the
| bank. The bank couldn't bear to watch the pile of money
| just sitting there. So it "invested" the money. Then it
| lost the money. Then they went under. Now everybody is
| losing their minds and the bank is getting liquidated in
| an attempt to make everybody whole again.
|
| I'm sorry but I just don't feel any sympathy at all. It's
| not the first time a bank fails but people never learn
| not to trust them.
|
| > I swear if it was called "generic bank" instead of
| "Silicon Valley Bank", we wouldn't be seeing all of these
| knee-jerk "good because they're bad" responses.
|
| Nope. I say the exact same thing every single time some
| bank-like institution fails: we warned you. When it's
| some crypto exchange, everybody here on HN gets a kick
| out of it. Now that it's some startup's bank, I'm
| supposed to feel sorry for them? No.
| theRealMe wrote:
| >It's likely startups only exist to begin with due to low
| federal interest rates. This is true for some startups.
| Not true for others. There's some nuance. Painting them
| altogether loses the nuance.
|
| > It is obvious that if those rates are low investors
| will look elsewhere. Startups are one of those
| elsewheres.
|
| I agree.
|
| > Now that rates are on the way up, there's no need for
| investors to risk their money on startups anymore. So
| startups no longer have one of the pre-conditions for
| their existence. Namely, free investor money literally
| pouring in and paying for all their expenses.
|
| Again, some investors won't spend as much of their money
| investing in startups. You talk as if it's just a single
| on/off switch. > Such is life in the free market. Looks
| like the US government disrupted you.
|
| We're talking about the startups here. The government
| "disrupted" the bank. And through no fault of their own,
| the startups get "disrupted" as a second order effect. My
| main point and the reason that I felt I should respond is
| this sense that I get from your comment that somehow
| startups deserved to lose their money because they kept
| it at the bank. As if that was the morally just
| conclusion.
|
| > I thought stuff like this was going to happen the
| second I saw the Fed raising interest rates to combat
| inflation. Looks like time proved me right.
|
| Yes. Everyone understood that "stuff like this" would
| happen. I'm positive that you didn't know that
| specifically SVB would go under in such fashion. Without
| using hindsight bias, what should a startup have done
| with this knowledge that "stuff like this" would happen?
|
| > Yeah sure. A "minor implementation detail" of the
| bank... Honestly, this isn't even the real issue at play
| here.
|
| I said "internal" not "minor". And I mean, yes it is the
| real issue at play? It's what caused them to go under?
| And was absolutely not something that any reasonable
| person would expect to know about their financial
| institution...
|
| > It's really simple to me. People put their money in the
| bank. The bank couldn't bear to watch the pile of money
| just sitting there. So it "invested" the money. Then it
| lost the money. Then they went under. Now everybody is
| losing their minds and the bank is getting liquidated in
| an attempt to make everybody whole again.
|
| Missing nuance that they invested in something that is
| seen as about the most safe thing you can invest in, but
| they DID mess up with the duration. Again, this is
| something that the bank messed up that no reasonable(non-
| financial industry) person could have seen coming. Sure,
| the bank deserves some blame for this, but the people
| that kept their money there could not have reasonably
| seen the risk.
|
| > I'm sorry but I just don't feel any sympathy at all.
| It's not the first time a bank fails but people never
| learn not to trust them.
|
| "Don't trust banks". Ok. Got it. Now what? Without using
| hindsight bias, what should a startup have done with
| $10million? Keep it under their mattress? Invest it in
| something more risky than treasuries?
|
| > Nope. I say the exact same thing every single time some
| bank-like institution fails: we warned you.
|
| Noted. Now what?
|
| > When it's some crypto exchange, everybody here on HN
| gets a kick out of it. Now that it's some startup's bank,
| I'm supposed to feel sorry for them? No.
|
| You're comparing losing your money by gambling on
| something with no intrinsic value, in an unregulated
| market, that was built primarily as a means of subverting
| oversight, with keeping your money in a highly respected,
| highly regulated, FDIC insured bank.
|
| That said, I hope people weren't HAPPY that crypto
| HOLDERS lost their money.
| matheusmoreira wrote:
| > We're talking about the startups here. The government
| "disrupted" the bank. And through no fault of their own,
| the startups get "disrupted" as a second order effect.
|
| Same thing. It's still disruption even when it's
| indirect. Perhaps they should have chosen to minimize
| their exposure to that risk. For whatever reason, they
| didn't. Now these are the consequences.
|
| I don't want to hear that they're getting any government
| help whatsoever. By all means liquidate the bank and then
| distribute the money. If that's not enough to pay them
| back... Tough luck.
|
| > My main point and the reason that I felt I should
| respond is this sense that I get from your comment that
| somehow startups deserved to lose their money because
| they kept it at the bank. As if that was the morally just
| conclusion.
|
| Let me make it clear then: that's _exactly_ what I
| belive.
|
| Banks are not the "risk free safe haven" people make them
| out to be. People treating banks like that are a huge
| problem that I wish would be fixed. One way to fix it is
| by destroying the illusion that you're "safe" despite all
| the risks the banks are exposing you to. The easiest way
| to destroy that illusion is to have people actually lose
| their money when their bank fails.
|
| Therefore, that's what I wish would happen.
|
| > I'm positive that you didn't know that specifically SVB
| would go under in such fashion.
|
| I know with absolute certainty that any given bank could
| literally flop at any given moment if enough people tried
| to withdraw their cash at the same time. The only reason
| why it doesn't happen often in practice is the government
| will literally print money and "inject liquidity" into
| them to stop a total economic meltdown from happening.
| I'd rather they didn't and just allowed banks to fail.
|
| > Without using hindsight bias, what should a startup
| have done with this knowledge that "stuff like this"
| would happen?
|
| Not keeping money at the bank would be a start. At least
| use many independent banks so you're not exposed to the
| stupidity of any one bank.
|
| > And I mean, yes it is the real issue at play? It's what
| caused them to go under?
|
| If we're talking about the bank's failure, yes. It's not
| relevant at all if we're talking about the startup that
| relied on the bank to hold their money for them.
|
| > And was absolutely not something that any reasonable
| person would expect to know about their financial
| institution...
|
| Well, I sure as hell do expect to know everything my bank
| is doing. After all, I'm putting my money in there and
| they're "managing" it. One of my banks sends all clients
| a detailed written report about their accounts and
| investments every year. Others don't so I ask the manager
| what they're doing with my money instead. I will
| literally pull my money out if I don't like the answer.
| I've done it more than once.
|
| > Missing nuance that they invested in something that is
| seen as about the most safe thing you can invest in
|
| That's intentional on my part. What they "thought" or
| "intended" to happen doesn't matter at all. "Everybody
| thought" mortgage backed securities were a safe
| investment back then too and that common sense doesn't
| count for shit when everyone is getting wiped out.
|
| > no reasonable(non-financial industry) person could have
| seen coming
|
| > but the people that kept their money there could not
| have reasonably seen the risk
|
| Sure they could. Literally every bank exposes you to the
| risk of their fractional reserve banking. The problem is
| they don't because they don't understand the nature of
| banks and what they do. People think it's just "their
| money at the bank".
|
| That's ultimately what I want: for people to start seeing
| government and bank screwups coming. Telling them does
| nothing so maybe losing money will.
|
| I think this is the sort of stuff that should be taught
| to everyone in schools.
|
| > what should a startup have done with $10million?
|
| > Invest it in something more risky than treasuries?
|
| What do you think banks do when you deposit $10M in them?
|
| > You're comparing losing your money by gambling on
| something with no intrinsic value, in an unregulated
| market, that was built primarily as a means of subverting
| oversight, with keeping your money in a highly respected,
| highly regulated, FDIC insured bank.
|
| Those two things are pretty much the same scam to me. One
| is "respected and government backed", the other isn't.
| Maybe the government should start backing the proto-banks
| we call exchanges too. Wouldn't that be funny?
|
| > That said, I hope people weren't HAPPY that crypto
| HOLDERS lost their money.
|
| Sorry to disappoint you. If you think this comments
| section is bad, you should see how gleefully the HN folks
| _cheer_ when the "crypto bros" get fucked by some whale
| dumping on the market or something.
| mind-blight wrote:
| > Do you have an actual argument that falsifies what I've
| said? I'm all about owning up to my mistakes but right
| now I have no reason to believe I'm being stupid.
|
| There are two key things that I think you're
| misunderstanding:
|
| 1) the bank didn't lose the money. A lot of it is locked
| up in long-term securities that would have to be sold at
| a loss to access the money now. But, at maturity, all of
| the money would be paid back. The money is there, but
| it's illiquid. A bank with the same investment but more
| liquid assets would have no problem
|
| 2) The investors are going to get screwed, and the
| depositors will likely be made most of the way whole.
| This is without a government bailout. Given that the
| assets are there, I'd be surprised if a big bank didn't
| gobble them up for the goodwill of future tech unicorns.
|
| I'd be upset if there was an investor bailout. I'd
| question why we needed a depositor bailout. I don't think
| either are necessary or going to happen
| matheusmoreira wrote:
| > 1) the bank didn't lose the money. A lot of it is
| locked up in long-term securities that would have to be
| sold at a loss to access the money now. But, at maturity,
| all of the money would be paid back. The money is there,
| but it's illiquid. A bank with the same investment but
| more liquid assets would have no problem
|
| Also known as being literally insolvent. They can't pay
| back what they owe. People have bills to pay tomorrow, so
| nobody really cares that the money is gonna be there 10
| years from now. Peopld want their money, and the bank
| can't pay it back. They might as well have taken the
| money and thrown it into a black hole.
|
| > 2) The investors are going to get screwed, and the
| depositors will likely be made most of the way whole.
| This is without a government bailout. Given that the
| assets are there, I'd be surprised if a big bank didn't
| gobble them up for the goodwill of future tech unicorns.
|
| I suppose it's moral as long as not one cent of public
| money is used to pay anyone off. That includes
| "backstopping" bank runs or whatever it is the Fed does.
| That also includes literally any measure that could
| conceivably increase inflation which is an indirect way
| of making us all pay for it.
| mind-blight wrote:
| > They might as well have taken the money and thrown it
| into a black hole.
|
| It entirely depends on the circumstances, and those
| circumstances are _extremely_ important to this
| discussion. A bank with sufficient liquidity wouldn 't
| have a solvency issue holding these assets - they would
| exist and be paid out in time, and nobody would no the
| difference but the bank's accountants.
|
| That is extremely important because it means the money
| exists - it was not lost. That makes purchasing SVB
| viable for a bank that can handle the securities' long
| maturity. That would _not_ be the case if they head
| actually lost the money.
|
| > That also includes literally any measure that could
| conceivably increase inflation which is an indirect way
| of making us all pay for it.
|
| I would encourage you to read about Spain's economy
| during the late 1500s. Specifically, why they were
| advertising across Europe to convince Jews to move to
| Spain - you'll get to learn why the Jewish banker
| stereotype exists (racism meets fiscal policy meets
| religious doctrine) and see an interesting example of how
| a society changes with proto-moderm banking introduced.
|
| In my experience, most proponents of "inflation is theft"
| propose financial systems that fail to account for
| critical problems that were addressed in modern finance
| so long ago that they've been mostly forgotten
| matheusmoreira wrote:
| > In my experience, most proponents of "inflation is
| theft" propose financial systems that fail to account for
| critical problems that were addressed in modern finance
| so long ago that they've been mostly forgotten
|
| Sounds interesting. Please elaborate on these problems.
| It's definitely gonna be a lot more interesting than
| discussing a failed bank.
|
| As far as I'm concerned, the main problem solved by banks
| is the exponential growth problem. They solve it by
| providing credit, enabled by depositors. Entire nations
| and empires were developed by this scheme. Especially in
| the 1500s, the age of european colonialism.
|
| Doesn't mean it's sustainable.
| mind-blight wrote:
| > Sounds interesting. Please elaborate on these problems.
| It's definitely gonna be a lot more interesting than
| discussing a failed bank.
|
| Lol, fair. In the 1500s, Christians and Muslim were
| barred from giving loans with usury (interest), so there
| was no financial incentive to give anyone but friends and
| family money. The European aristocracy was either
| Christian or Muslim (Portugal and Spain for a while).
| Essentially, if you weren't already well connected to the
| rich, you couldn't access capital.
|
| Jews didn't face the same religious restrictions, and
| they were barred from many other jobs in society, so they
| often fell into the role of bankers where they lived
| (since they could charge interest and make money). These
| banks facilitated wealth transfers between the wealthy
| and people with few means and connections. It resulted in
| economic booms (and there are plenty of legitimate
| criticisms of exponential growth), but it spread the
| wealth to people who wouldn't have otherwise had access.
|
| And that's the double edged sword: loans can facilitate
| wealth transfer from wealthy to folks with limited means,
| but doing that causes inflation.
|
| Rich people have since found tons of ways to manipulate
| the system, and we've added layers of regulation that are
| supposed to make that harder. Some of that has worked,
| and some of that has failed. But, I do think that
| inflation is a necessary side effect of preventing
| capital from being hoarded in walled gardens
| violenceislaw wrote:
| [dead]
| gamblor956 wrote:
| _Also known as being literally insolvent. They can 't pay
| back what they owe. _
|
| No, insolvency is a legal and accounting term indicating
| that liabilities exceed assets. If assets and liabilities
| are equal, but the liquidity of those assets did not
| match the term of the liabilities., that is illiquidity,
| not insolvency.
|
| That being said, the CFPI said in its order shutting down
| SVB that the bank was both illiquid _and insolvent_ so it
| appears that their assets, even adjusted for value at
| maturity, were not sufficient to cover liabilities. And
| that 's probably why the banks they reached out to about
| taking over SVB Thursday night did not.
| matheusmoreira wrote:
| Makes sense. Thanks for correcting me.
| tsunamifury wrote:
| This is a dramatic misunderstanding of those two categories
| if investing, their motivations, and end goals.
|
| It's like saying an F1 team will now buy family economy
| cars to race with since their prices are down now.
|
| You invest in a startup fund for extremely high risk high
| reward outcomes. You invest in interest rate bonds etc for
| guaranteed low outcome.
|
| HN has become ridiculous.
| matheusmoreira wrote:
| You say I'm "ridiculous" and "detached from reality" yet
| the economy pretty much screeched to a halt when the Fed
| rased interest rates. The money stopped flowing freely,
| the massive layoffs began... Now we have literal banks
| failing. Yeah.
| polio wrote:
| Nothing screeched to a halt. Money stopped flowing as
| freely as it once did. The layoffs are relatively
| massive, but the companies involved are still enormous
| organizations. Things have slowed down, and things are
| fraying at the edges, but the economy is still largely
| fine. This is the intended outcome of the present
| monetary policy.
| SMAAART wrote:
| I second your point and add: what's at stake here is not just
| SVB's customers, but the reputation of the entire US Banking
| system.
|
| The shareholders should lose all of their investment, that is
| a no-brainer, but the depositors should not lose 1 penny, and
| their funds be available on Monday morning.
|
| Here's an overlooked deadline: 6:00 PM EST, that is when
| Sydney (Australia)'s stock market opens. If that opens a lot
| lower, it will be the start of a free-fall cascade of stock
| markets worldwide.
|
| So, we have less than 5 hours as of this writing for an
| official FDIC/Federal Reserve statement.
|
| Wait for it.
| dehrmann wrote:
| > but the reputation of the entire US Banking system
|
| Agreed. Advanced economies work because there are things
| you can take for granted, and you gain efficiencies from
| that. There are plenty of countries where the currency
| collapses every decade and banks don't work well. None one
| looks up to them, no one aspires to start a business there,
| and they're not leaders in anything other than maybe a
| commodity. They're places smart people leave.
| [deleted]
| starkd wrote:
| For anyone interested, the All-In podcast did an excellent job
| covering this on Friday. Particularly, David Sacks stressed
| this would not be a bailout, but merely backstopping deposits.
| SVB did nothing illegal or wrong, so it is not an Enron
| situation.
|
| https://www.youtube.com/watch?v=CEee7dAk25c
| rkhacker wrote:
| >"Depositors shouldn't get anything beyond the insured
| $250,000". Then what do we do with the billions in remaining
| assets? Appropriate them, and leave small and mid businesses
| hanged to dry?
|
| To me such statements feel like - either you are with me or
| against the humanity. Of course, the government should not
| gobble the money that belongs to the depositors and the fund
| should be distributed fairly to the depositors post
| liquidation. But making whole the deposits through the tax
| payers money will not be right. This is a business failure and
| what is insured is only what is guaranteed to be paid back.
| That is the risk business take when they engage in such
| transactions.
|
| Individuals who had more than $250k sitting in bank account
| must be well-off and prudent enough to decipher the FDIC
| insurance limit.
| [deleted]
| stillbourne wrote:
| Isn't you company responsible to insure its own assets above
| the FDIC deposit limit? I guess personal responsibility only
| applies to poor people not corporations.
| [deleted]
| maxerickson wrote:
| It's coherent to think the FDIC shouldn't put in more than
| $250,000 per insured account and also that if funds in excess
| of that are available without FDIC participation that they
| should all go to depositors.
|
| People implying other things probably don't really understand
| how banks work.
| ec109685 wrote:
| The flip side is also true: people claiming that unless the
| government provides a bailout, depositors above 250k will be
| wiped out.
|
| There's a procedure to handle this, including dispersing the
| assets:
|
| "The FDIC will pay uninsured depositors an advance dividend
| within the next week. Uninsured depositors will receive a
| receivership certificate for the remaining amount of their
| uninsured funds. As the FDIC sells the assets of Silicon Valley
| Bank, future dividend payments may be made to uninsured
| depositors."
| chernevik wrote:
| Much of the "schadenfreude" is backlash at special pleading,
| distortion of facts and word games.
|
| If the tech community reaction was "wow, this sucks, we're
| going to have to manage a lot of crap" the general reaction
| would be very sympathetic.
|
| But when the consensus position is "gimme money to cover my
| mistake", I have to say "no" rather than "geez, that's
| terrible".
| HervalFreire wrote:
| [dead]
| analog31 wrote:
| Maybe the solution is to explain in plain terms what's going to
| happen. In other words, how much money there is, where it's
| coming from, and where it's going. What are these assets? I'm
| assuming they include the loans that will be called in. When a
| bank calls in its loans, do they have immediate access to the
| money, or do the customers in turn have to sell their own
| assets to pay back the loans?
|
| On the other hand, if the bank had sufficient assets to make
| their depositors whole, how did they fail in the first place?
| spaceman_2020 wrote:
| Isn't the entire point of having hundreds of banks the idea
| that competition will give customers choice, and that they can
| choose to bank with anyone based on their own risk tolerance?
| aaomidi wrote:
| Literally not a single person is suggesting not using the banks
| existing assets to make depositors true.
|
| what we are saying is this should ONLY use the assets SVB has.
| Nothing more.
|
| I'm not sure why y'all keep making a strawman to fight this.
| pdntspa wrote:
| > to make customers, not owners, whole
|
| The entire business world could use a hard lesson here
| ajross wrote:
| > Generic screeching against the tech world
|
| There's some of this, for sure. But there's an equivalent
| screeching from the tech finance world[1] demanding a full
| government guarantee. That ain't happening, and I think it's
| appropriate for the fed to make that clear.
|
| FWIW: the dirty secret here is likely that there's a bunch of
| internal dealing going on as regards SVB. They were The Startup
| Bank for some reason, it's not random. And my guess is that
| we'll discover that a whole lot of big venture players turn out
| to be extremely exposed[2] to an SVB failure. A lot of VCs are
| probably losing their shirts here.
|
| [1] Jason Calacanis's caps lock has been stuck down since
| Friday.
|
| [2] Or worse. Genuine fraud has turned up in previous FDIC
| seizures. But no evidence exists right now.
| mark_l_watson wrote:
| I agree with you. I listened to the usually fantastic All In
| Podcast yesterday. Usually, I find the content very
| interesting but yesterday I felt like all four of them were
| all about protecting their little world.
|
| To me, it sounds like SVB cut a lot of corners and SV
| customers enjoyed advantages of some of these cut corners.
|
| I am deeply sympathetic to people who may not get paid for a
| while, or have their startups go under. That said, there are
| precise laws covering what the FDIC can and can not do. I
| think the general public is tired of very connected people
| and companies getting special treatment.
|
| There is certainly a danger of contagion, of regional banks
| taking a hit, by being compared to SVB, but that does not
| change my opinion, and I certainly will not stop doing
| business with two relatively small Credit Unions in my state.
| hindsightbias wrote:
| We need to know who and how much the big fish are exposed.
|
| Bailing out the Peter Thiel's of the world is not something
| that should be swept under the rug.
| ajross wrote:
| Amusingly Thiel himself seems to have been out of SVB. He's
| being fingered[1] as the "cause" of the bank run and lots
| of people are asking if he shorted the stock.
|
| [1] Somewhat unfairly. I mean, the guy's an outrageous
| jerk, but from the evidence at hand it genuinely looks like
| he recognized the problem with their balance sheet before
| everyone else, got himself out, and told his companies to
| do the same. And he was right. That's not fraud, that's
| good faith financial analysis.
| fullshark wrote:
| The reason is because there are countless scenarios in the US
| economic system, where people/businesses fail cause of no fault
| of their own, but they are told tough luck that's the free
| market at work cause these people are simply unconnected or
| their failure is deemed unimportant. It's why the finanical
| bailouts left a bitter taste for anyone paying attention, and
| why gov't action here is immediately scoffed at.
| ianai wrote:
| Except this is the opposite of what happened in 2008 with
| bailing out the banks. Then, the banks got public money to
| remain solvent. Here, the bank is taking the hit and the
| government is ensuring the depositors get their funds back.
| In 08 people were kicked out of their homes and banks were
| propped up with public funds. Here, the depositors are being
| made whole and the bank is going out of business. The salt is
| your typical 0 knowledge hot take.
|
| It's absolutely in the interest of the greater economy to
| have a functioning banking system backing high risk/high
| reward activities like Silicon Valley. And charge the risk
| appropriately high fees, of course. SV has been a very bright
| spot in the economy for several decades now - through thick
| and thin.
|
| If anything, it's a lesson about how assets should be
| accounted for in corporate statements. It's also a statement
| that the perception of SV is a little sour and could use some
| reflection. Maybe look for ways to better engage the rest of
| the community and figure out where resentment stems. (I'd
| guess calling large swaths of the US "fly over country",
| charging high prices, and other consumer feedback involved.)
| unity1001 wrote:
| > Here, the depositors are being _bailed out_
|
| There. Now its correct. Rephrasing something does not
| change its nature.
|
| The 2008 bailouts were done with that excuse too. They were
| 'too big to fail', and it would 'affect everyone' so that
| they were bailed out to 'help' the main street.
|
| > It's absolutely in the interest of the greater economy to
| have a functioning banking system backing high risk/high
| reward activities like Silicon Valley.
|
| It is. And its totally against the interest of the greater
| economy to bail out those who screw it up by taking great
| risks. Its against the interest of the greater economy to
| bail out those who didnt take any risk either. Because it
| socializes the risk while privatizing the reward. That's
| why people hate bailouts.
|
| All those startups and wealthy entrepreneurs put their
| money in the wrong bank. The wrong bank was shown as the
| best bank through a lot of fallacies, ranging from
| groupthink to obligations pushed on startups by VCs. Nobody
| came up and tried to raise awareness about how bad this
| setup was. Those who tried to do it were unheard. Those
| most affected from this, the rich VCs, all the SV funds,
| tech ecosystem top dogs, 'thought leaders', investors, are
| the ones who created this environment and caused this to
| happen.
|
| Now, when the cows are coming home, asking for a bailout is
| socializing the risk while privatizing the profits.
|
| The only exception can be made in the case of the state
| taking a ginormous amount of ownership of everything that
| it bailed out and not sell its shares out until it milked
| its money's worth to cover its bailout amount plus an
| above-market profit rate from that investment...
| teawrecks wrote:
| This statement doesn't make sense to me:
|
| > Its against the interest of the greater economy to bail
| out those who didnt take any risk either. Because it
| socializes the risk while privatizing the reward.
|
| In the first sentence you say there is no risk being
| taken by a group, and in the second sentence you imply
| there is a risk being taken that a group should not be
| bailed out of. Could you elaborate? What non-risk taking
| risky group are you taking about here?
|
| Are you arguing that the depositors were also risk takers
| here? What were their options to mitigate that risk
| besides not use a bank?
| unity1001 wrote:
| The public has an interest in enabling high risk
| ventures, BUT, this must happen through a well designed
| mechanism that sustains itself. Like how I explained in
| my comment later: Through the taxes levied for that
| reason, through insurance fees charged to fund that
| mechanism and so on.
|
| But none of these apply in this case. High risk decisions
| were made by all of these actors, including most of the
| depositors, while privatizing all the profits. The very
| CEO of the bank is a libertarian and he publicly
| advocates that government should disappear. All the
| depositors are either part of the VC crowd, or startups
| that are practically controlled by those VC crowd. And
| most of the money (ironically) still belongs to that
| actual VC crowd indirectly because those VCs control the
| startups that they gave those funds to.
|
| So basically it was all privatized profits until the
| risky decisions came home and suddenly a need for
| socializing the losses came to being, causing even the
| die hard libertarian CEO of SVB to start publicly
| demanding that the govt. should bail them out, in a
| public display of total lack of principles. (then again
| Ayn Rand did the same).
|
| Yes, the depositors were also risk takers. They took the
| risk of trusting that high-risk bank that lobbied for
| watering down regulations for more profit. They took the
| risk of trusting the VCs who forced them to put their
| money in that bank. Non startup/VC related clients took
| the risk of putting their money in that bank for reasons
| ranging from higher gains to groupthink. Those were
| decisions taken by them. The public cannot be expected to
| save them from the consequences of that risk taking
| without getting back its money's worth. And no - the
| return cannot be 'a more lively startup ecosystem'. The
| expected return can only be money. That the public so
| desperately needs for repairing the society.
| auntienomen wrote:
| Tangent: In decades of socializing in NYC and the Bay Area,
| I've only ever seen the term 'flyover country' used by
| people complaining that the coastal elites look down on
| them. Never once heard the term from an actual coastal
| elite.
| mym1990 wrote:
| There's a country song called 'Flyover States' by Jason
| Aldean thats pretty good!
| TexanFeller wrote:
| I think of NYC and CA as flyover country since I never go
| there, but fly right over it to get to Europe or Asia ;P
| ianai wrote:
| And I live in "flyover country" and hear it plenty and it
| is a fact of life and business here.
|
| Look, when corporations like Amazon look for a new HQ
| they head to places like NYC. They say it's because of
| the larger labor pools there. And it's even valid to an
| extent - Arizona keeps getting semi fabs because they
| already have semi fabs and labor. The opposite would be
| looking for some location with the characteristics to
| grow over time into the location a company wants and
| making the expanse a long term project. Population
| characteristics absolutely can change on the scale of
| decades.
|
| Edit-Just to put a point on this. "Flyover country" is
| undeveloped country. It's cheaper to develop. If you want
| to build a huge fab in the middle of nowhere it's going
| to cost little more than the costs of supplies and labor.
| And there's always a way to get labor if the price is
| right. Do it in NYC or SF and you're competing with all
| the other current/future uses of that land and it's going
| to be expensive. Probably going to face zoning
| restrictions.
| auntienomen wrote:
| Sounds like you're agreeing with me. "Flyover country" is
| what the people who live there call it. No need to put
| the words in anyone else's mouth.
| ianai wrote:
| What I'm saying is if SV had a history of developing
| economy outside of the coasts there might be less salt.
| Denver's kind of a good case in point. It's seen a huge
| tech influx. There's probably less salt towards tech/SV
| there than elsewhere. And if not, the reasons may be
| informative for anyone looking to better the image of SV.
| But living there is also sky high-and maybe it's time to
| look for ways to move on to cheaper pastures.
| akira2501 wrote:
| There's a marketing angle to calling yourself "Silicon
| Valley Bank."
|
| This is just the ugly side of that marketing playing out.
|
| Meanwhile, the FDIC is required to do whatever is less
| costly to the FDIC insurance fund. There really isn't a lot
| of choice in the matter from the government's perspective.
| helsinkiandrew wrote:
| Because if a normal business goes bust leaving customers out
| of pocket, it's usually only a small percent of the customers
| "wealth" (and often insurance will cover it).
|
| If someone's bank goes bust they can loose a much larger
| proportion of their wealth. Often causing them to go bust,
| causing more bankruptcies and job losses.
|
| Governments act as insurer of last resort for most bank
| defaults, because the confidence of the banking system and
| money is integral to the countries existence.
| thesimon wrote:
| > If someone's bank goes bust they can loose a much larger
| proportion of their wealth
|
| But only if they decide to hold their wealth in uninsured
| deposits to save money or effort.
| harles wrote:
| I don't understand this debate. The article says nothing
| about whether or not depositors will be bailed out.
| ianai wrote:
| It says exactly that:
|
| " Janet Yellen said on Sunday that the US government was
| working closely with banking regulators to help depositors
| at Silicon Valley Bank but dismissed the idea of a bailout.
| [...] "Let me be clear that during the financial crisis,
| there were investors and owners of systemic large banks
| that were bailed out . . . and the reforms that have been
| put in place means we are not going to do that again,"
| Yellen said. "But we are concerned about depositors, and
| we're focused on trying to meet their needs.""
| harles wrote:
| The quote says the opposite of that. Depositors are not
| investors or owners. How can so many people misread this?
| ianai wrote:
| Reread it.
| schrodinger wrote:
| She is saying the bank will go out of business, and any
| people who owned stock in it will lose all of that money,
| hence the difference from 2008. And then continues on to
| say that _depositors_, i.e. the people who had savings
| accounts there, will be helped (although she notably
| didn't commit to 100%).
| Kon-Peki wrote:
| I think we should assume that they are going to be making
| the advance deposit earlier in the week rather than
| later, and it will be as large as they can possibly make
| it.
| hirako2000 wrote:
| What it says though, is that bailing it out is off the
| table.
|
| Which has an effect on the investors outcome, hence help
| depositor better, or at lower cost.
|
| It's an investors, depositors, and tax payers dilema.
|
| The brightest and only fair outcome would be that a private
| funds/bank aquires SVB. That way everyone is made whole at
| the expense of nobody. A very unlikely scenario given
| nobody would touch a beyond help entity with, potentially,
| liabilities turning out greater than the overall assets
| left. Intengible assets may save the day, still a bit of
| hope there.
| Cyph0n wrote:
| Exactly. Rules for thee but not for me.
| bratbag wrote:
| Different rules for something that could risk systemic
| failure, more like.
| dragontamer wrote:
| We literally have Dodd-Frank rules built up over the last
| 15 years to prevent these things from becoming a systemic
| failure.
|
| I get that people are still squeamish about 2008. But our
| banking system is quite different today compared to back
| then. We built up these rules so that we wouldn't have to
| bailout banks in these situations anymore. That's what
| the entire damn point was.
|
| If it doesn't work, then it doesn't work. But I for one
| am more than willing to test out these rules... at least
| for the next few weeks... to see if they actually work.
| If they don't work, then we strengthen our regulations
| over the next 10 years. If they do work, then... success.
|
| --------
|
| We absolutely shouldn't just hit the bailout button
| before understanding this problem. 2008 + Dodd Frank was
| supposed to prevent this from being a systemic cataclysm.
|
| -----------
|
| What probably needs to happen is for Thursday's bank run
| to be undone. Issue a clawback so that the $46 Billion
| that escaped on Thursday and punish those who bankrun /
| collapsed the bank in a panicky stampede.
|
| That's far, far more fair than a bailout. Redistribute
| the money in a more fair way, but accept the risk that
| SIVB made for itself and its community.
| amalter wrote:
| There is zero precedent for clawbacks from on demand
| accounts at a regulated financial institution. This isn't
| even a "capital B" Bankruptcy, so I have doubts clawbacks
| would be legal.
|
| That would also throw gasoline on the fire as people
| cease to trust even withdrawn money as whole. It's now in
| your interest to get your money out of any bank showing
| any weakness as early as possible.
|
| Clawback SVB money Monday and we'll have a run on First
| Republic Tuesday and possibly 20 other institutions by
| the end of the week until we get to Ally and that will
| empty the FDIC piggybank.
|
| Which is why the cooler heads at the FDIC try to make all
| depositors whole. Hopefully they can find someone to take
| SVB's assets on in HTM valuation and maybe some
| government equity in exchange for ownership. (Remember
| the government made money on its equity deals in 2008).
| tome wrote:
| > It's now in your interest to get your money out of any
| bank showing any weakness as early as possible.
|
| Wouldn't it be the opposite? It would lead to there being
| no incentive to withdraw since you'd only have to give it
| back.
| SpicyLemonZest wrote:
| What happened from a regulatory perspective is pretty
| straightforward; in 2018 large regional banks like SVB
| successfully lobbied for a partial Dodd-Frank exemption.
| (https://www.npr.org/sections/thetwo-
| way/2018/05/22/613390275...)
| dhbanes wrote:
| How do you expect Dodd-Frank to prevent every regional
| bank depositor with half a brain cell attempting to move
| their deposits to a big 4 first thing Monday morning?
|
| Do you understand the consequences of that? If that
| happens, dozens and perhaps eventually hundreds of
| regional banks will fail and many many more depositors
| will be out money.
| dragontamer wrote:
| Do you understand how crap SIVB's books were? 50%+ held
| to maturity? Long dated 10Y and 30Y bonds? A complete
| lack of a Risk Officer from April 2022 through January
| 2023?
|
| Given how utterly terribly SIVB was run, I'm not exactly
| expecting a major issue come Monday. I'm looking at the
| books of like Ally Bank, and they're way better. https://
| d18rn0p25nwr6d.cloudfront.net/CIK-0000040729/f4eb406...
|
| ----------
|
| If there are other banks as poorly run as SIVB, they
| probably do deserve to collapse. But I also don't expect
| there to be many banks with that level of stupidity.
|
| At Silicon Valley Bank, we're basically looking at a
| bank, whose Risks were completely slept on during the
| entire period of the fastest rising federal funds rate in
| the last half-century. (Or really, the position of Chief
| Risk Officer was vacant for this entire period). I assume
| the other banks had better risk management.
| schrodinger wrote:
| Mostly agree, but panic isn't always rational and I
| suspect most people will react emotionally rather than
| look at their bank's books like you did.
| dragontamer wrote:
| If the banks books are solid, they should survive a
| 25%ish decline in deposits, which was roughly the level
| of SIVB on Thursday.
|
| I don't expect a 25% decline across the industry however.
| The knock-on effects will be smaller. With a smaller
| "shockwave" of runs, combined with stronger bank
| fundamentals, I really don't think we're looking at a big
| domino-effect 2008-like collapse here.
| brasic wrote:
| SVB explicitly argued that it was not capable of risking
| systemic failure and on that basis gained an exemption
| from Dodd-Frank rules that would have prevented them from
| failing to hedge against interest rate risk that took
| them down.
|
| https://fortune.com/2023/03/11/silicon-valley-bank-svb-
| ceo-g...
|
| There has to be some accounting for that.
| stanleydrew wrote:
| The problem is that we don't yet know what the "rules" will
| be in this case, and a lot of commenters are getting out
| over their skis assuming that tax money is going to go into
| the bank accounts of SVB depositors or something similar.
| hirako2000 wrote:
| Well put, can pull the "capitalism" at the expense of few to
| many yet "socialist" when conductive for mostly a few, but
| not many times.
|
| I still think they will get away with bailing out several
| banks that will otherwise fall hence the system. Via means
| that adhere to whatever rules were put in place.
| unity1001 wrote:
| > make customers, not owners, whole
|
| Framing bailout with a different word like 'make whole' does
| not make it not a bailout. The bank played with those people's
| deposits and screwed it up. Rescuing all the deposits would
| just exonerate the bank of all its wrongdoing and set a bad
| precedent. "There are no repercussions for bad business
| management".
|
| Per capitalist philosophy, the bank should sink, along with
| whatever deposit was in there - "Buyer beware". If you dont
| agree with that principle, it means that you are not
| subscribing to capitalism, but to social democracy in which
| capitalist principles are overridden by socialist principles to
| protect the public. And the moment you go that way, you open
| the door for questioning a lot of the setup that rules the
| modern economy.
| gwright wrote:
| > Per capitalist philosophy, the bank should sink, along with
| whatever deposit was in there - "Buyer beware".
|
| Why do you think that? There is no axiom of "capitalist
| philosophy" that says "when one party screws up all parties
| must maximally feel the pain".
|
| There is a framework for unwinding these sorts of things.
| Depositor agreements as well as the relevant regulations and
| laws regarding business agreements and contracts are all part
| of the "capitalist philosophy".
| unity1001 wrote:
| > Why do you think that? There is no axiom of "capitalist
| philosophy" that says "when one party screws up all parties
| must maximally feel the pain".
|
| That was a capitalist business in which the depositors were
| LENDERS of that business with the understanding that the
| business would use their money for profit making activities
| and give them an interest rate and other returns in the
| process. Along with whatever investment scheme the bank was
| providing for its clients.
|
| Those depositors could have chosen any bank in the US, and
| most of them have the power to choose any bank in the
| planet. But they chose SVB for what it provided. It was a
| business decision. They chose the highest yields by
| choosing this risky bank.
|
| And now that the risk taking caused a crash and burn, the
| rest of the public who did not take those risks cannot pay
| for the sunken bank or its mega depositors. They all took
| risks, its their burden to bear. Profits cannot be
| privatized and risk socialized instead.
|
| > There is a framework for unwinding these sorts of things.
| Depositor agreements as well as the relevant regulations
| and laws regarding business agreements and contracts are
| all part of the "capitalist philosophy".
|
| Precisely. And the limit is $250,000. The government is
| responsible with bailing out that amount by law. Not the
| rest. Doing otherwise not only bails out risk taking
| depositors who took a risk while keeping all the profits -
| it also reduces SVB's liabilities and risk and props up its
| value. Its an indirect bank bailout too.
|
| Laws and regulations that protect the players in an economy
| come from socialism. Not capitalism. In capitalism, 'buyer
| beware' is the rule and those who take risk and screw it up
| are left to sink with their bad choice. You live in a
| social democracy created by imposing socialist practices on
| capitalism.
|
| If the laws said that "Up to $1 billion of each depositor
| account can be bailed out", yes, it could have been done.
| But it doesnt say that. And any such bail out of such mega
| deposits by using public money is a middle finger given to
| everyone who did not take such risks.
| martythemaniak wrote:
| This whole saga has exposed the shocking financial illiteracy
| in this industry. There are laws and procedures about how to
| handle the situation. Banks fail all the time and the FDIC
| disposes of them all the time.
|
| Depositors will get their insured money on monday. The FDIC
| will then dispose of all the banks assets and return the
| proceeds to its creditors, that is depositors.
|
| Calling for the government to guarantee all deposits
| unconditionally is exactly calling for a bailout. Calling for
| the government to follow it's own laws and procedures as usual
| is redundant.
| a13n wrote:
| Second biggest bank failure in the history of the US requires
| exceptions to be made due to the sheer volume of companies
| and assets involved here.
|
| We don't want to erode global trust in US banks and dollars
| do we?
| rolandog wrote:
| Maybe the banks shouldn't be able to lobby for relaxing the
| regulations without which situations like these arise.
| a13n wrote:
| Agreed. Making depositors whole and tightening regulation
| aren't mutually exclusive.
| baq wrote:
| Normally HN has some of the best quality comments on the
| whole internet but the amount of FUD and just plain
| wrongness in this topic is surreal.
|
| The truth is: the bank's risk management was done by a
| couple pigeons: one to peck 'buy long duration' and the
| other to peck 'approved'. There is no other bank like this.
| Spillover risk is zero. The folks who are shouting about
| systemic bank run are talking their books (Ackman please
| shut up now if you're reading this)
| senttoschool wrote:
| You make valid points. I'm not sure why you're downvoted.
|
| I think the question now is whether a bailout would provide
| better ROI to the US economy than no bailout.
|
| Yellen seems to think the ROI is worth it.
| spamizbad wrote:
| I think there's a shocking lack of political literacy at work
| here because any action that could be perceived as a bailout
| by a layperson will be an albatross around the neck of any
| politician that supports such measures. Several of the VCs
| who spent Q4 of last year gloating about layoffs are now
| saying the sky is falling - so they aren't exactly a
| sympathetic group. You can belly-ache about populism or
| whatever but that's why you're seeing tepid responses from
| Washington.
|
| For the record I hope SVB gets taken over and depositors are
| made whole quickly but I think as an industry we are
| overestimating our political capital.
| martythemaniak wrote:
| Yep, the politics of this are terrible as well. Tech
| leaders like Sacks have spent years trolling people and
| making themselves as odious as possible and now they're
| crying for a bailout, while still being as odious as
| possible and blaming the government for this.
|
| But apart from the politics, even something as simple as
| Garry Tan calling for the government to guarantee all
| deposits is simply calling for the government to break its
| own laws.
|
| https://twitter.com/garrytan/status/1634630941334470656?cxt
| =...
| senttoschool wrote:
| I think Garry calling for a government bailout is a bit
| ironic considering how into crypto he is.
| twblalock wrote:
| Seriously, it's like a lot of people think the depositors
| should only get back $250k, and giving them back what remains
| of the _rest_ of their money is a bailout. It's not, it's what
| the FDIC always does.
| deltree7 wrote:
| HN has been brainwashed by Progressive Universities and reddit.
| Period.
| Grustaf wrote:
| Financial literacy is very low, also among tech workers. Even
| most founders only have very vague ideas about how finance
| works.
| tempsy wrote:
| can't people buy private insurance for their deposits above the
| $250k threshold?
|
| if you buy an expensive house or car you generally pay a lot
| more to insure that asset. not sure why people don't think of
| buying insurance on their bank deposits in the same way if you
| find yourself in a situation where you need to hold much more
| than $250k in one account for whatever reason.
|
| But even if you're an individual holding million in cash (and
| for whatever reason it is not invested), it isn't exactly
| difficult to open 10 checking + savings accounts and putting
| $250k each. In fact that is the prudent thing to do.
| [deleted]
| martinald wrote:
| Yes, you can buy it. It's very common at wholesale banking
| levels (credit default swaps are extremely commonly used to
| cover counterparty risk). Also credit insurance is available
| to anyone.
|
| However, the simple option here is to put money into short
| term govt bonds, there are ETFs like SGOV that make this
| extremely easy.
|
| Even more ridiculous is that you are getting 4-5% yield on
| them.
|
| This is what is so crazy about this entire saga - people
| should not be parking millions upon millions at a bank
| earning no interest when you could be getting 4-5%+ -
| _regardless_ of solvency issues.
|
| It is frightening to me people don't seem to understand this.
| It's absolutely basic money management. It would be more
| understandable when interest rates were basically 0 and you
| wouldn't get any yields from bonds. But that isn't the case
| and hasn't been the case for a long time now.
|
| Now clearly SVB were offering perks for doing this, but say
| you had $100m parked there, are those perks really worth
| $5m/year? People should have been asking that. It's a whole
| team of engineers paid for!
|
| And really offering personal perks to founders contingent on
| company money doesn't sit completely right with me, unless
| the founder owns 100% of the equity which most do not. It's
| one thing offering perks as goodwill but putting convents etc
| on company money for personal perks is suspect to me.
| TMWNN wrote:
| >It is frightening to me people don't seem to understand
| this. It's absolutely basic money management.
|
| It isn't frightening to me, because the trust people put
| into banks' reliability is a testament to the fundamental
| strength of the American financial system. I'd rather have
| that than the opposite, where everyone is hyper-sensitive
| about everything and even refuse to use banks at all.
|
| That said, there is no excuse for Roku, for example, to
| have more than $400 million in uninsured funds at SVB. That
| is fundamental malpractice on the part of its corporate
| treasury, CFO, and management.
| nopinsight wrote:
| Since bank run can be contagious, private insurance may fail
| to pay out in those cases.
| sneak wrote:
| I am fairly sure that the FDIC does not want people to need
| private insurance for bank deposits. This is a big sign your
| banking system sucks and is expected to fail badly at least
| some of the time, the avoidance of which is why the FDIC
| exists.
|
| And, yes, opening ten checking accounts is difficult and
| inconvenient.
| tempsy wrote:
| i can open a bank account in 2 minutes on my phone
|
| it certainly isn't alone an excuse if you are wealthy
| enough to even worry about the limit.
|
| most wealthy people probably have dozens of accounts for
| this reason alone. I read an article just yesterday about
| how Giannis (NBA star) opened 50 bank accounts to put $250k
| each years ago.
| criddell wrote:
| Then maybe banks should be required to have private
| insurance for accounts with balances above $250k? More
| conservative banks would pay very little for insurance
| while banks that take on more risk would pay more for
| insurance.
| dannyw wrote:
| Who, if not the government with a printing press, can
| insure nearly all the money in the banking system? Where
| does it come from?
| criddell wrote:
| The government could insure it. The first $250k per
| depositor is automatically insured and then after that
| they have to pay premiums per account.
| toomuchtodo wrote:
| The Fed wants to enforce fractional reserve lending,
| therefore they won't permit a Narrow Bank (which takes
| deposits and holds them solely in treasuries). If the
| government provided unlimited insurance for deposit
| accounts, the thought goes it encourages excessive risk
| taking on the part of financial institutions.
|
| Long story short, you're caught up in monetary policy. To
| mitigate these risks, you can use deposit accounts that
| sweep across multiple banks to get the cash insurance you
| need, and your finance/treasury department can invest the
| rest in short dated treasuries (which are backed by the
| Federal Reserve with no limit, and are considered risk
| free) or money market funds which contain only these same
| securities.
|
| https://en.wikipedia.org/wiki/Certificate_of_Deposit_Acco
| unt...
|
| https://www.chicagobooth.edu/review/safest-bank-fed-wont-
| san...
| criddell wrote:
| > The Fed wants to enforce fractional reserve lending
|
| Maybe the fraction should be made larger than 0%? Or
| maybe bailouts should come with more strings attached
| including actual penalties for executives and board
| members?
| PeterisP wrote:
| > The first $250k per depositor is automatically insured
| and then _after that_ they have to pay premiums per
| account.
|
| No, the banks have to pay premiums to FDIC for the
| insured amount, period. They have to pay premiums for
| these first $250k that get insured; it's "automatically
| insured" because they don't get a choice, but that
| insurance costs a market-price premium out of which all
| the potential payouts come.
| PeterisP wrote:
| They can insure it, however the banks explicitly don't
| want all those deposits (beyond what the law requires) to
| be insured because they don't want to pay the insurance
| cost. If you want that insurance, it's available, but of
| course it's not free.
| blibble wrote:
| they'd all set maximum balances instead
| criddell wrote:
| I would imagine that larger balances would be accepted
| for a fee.
|
| If the fractional reserve requirements were raised, banks
| would need the deposits in order to lend and they likely
| would welcome some larger balances.
| bradleyjg wrote:
| Do you think the $250,000 limit was an accident? Someone
| tripped on a keyboard and that's how the provision capping
| the insured amount came to be in the law?
| alpineidyll3 wrote:
| Since it was the result of single moment in time 100
| years ago and never adjusted, yes it was basically an
| accident of history.
| smugma wrote:
| "Only six months after the creation of the FDIC,
| government leaders realized the initial $2,500 limit was
| not enough to effectively support the banking system. So,
| on July 1, 1934, the FDIC limit was doubled to $5,000."
| bradleyjg wrote:
| You really think the FDIC limit was $250k in 1933? I mean
| go ahead and google but you should have been able to
| intuit this one.
| CPLX wrote:
| Perhaps I can address your point about "generic screeching"
| against the tech world, by noting that the criticism here is
| often specific and direct. Not generic.
|
| The usual suspects have been trying to frame it in terms of the
| regular old startup workers that will be affected.
|
| But what about these entrepreneurs, the taxi drivers who were
| completely fucked by the onslaught of Uber and Lyft using
| financial engineering to lose money on each ride and undercut
| their livelihood:
|
| https://www.nytimes.com/2019/12/23/nyregion/nyc-taxi-suicide...
|
| Or these ones, who saw VC funded delivery services stealing
| their tips:
|
| https://www.nbcnews.com/business/business-news/why-instacart...
|
| And so on. We would also like to see social media held
| accountable for the harms done to children and communities and
| for our existing laws against anti-competitive behavior and
| collusion to be enforced against search and software platforms.
|
| The chutzpah of the Silicon Valley influencer crowd over this
| weekend has become seriously fucking unbearable. My feeds are
| full of sociopathic libertarians calling for government to make
| sure they never suffer any consequences for their failure to
| adequately manage risk?
|
| Many of the people expressing this frustration are in favor of
| having the government heavily involved in preventing this kind
| of thing and helping if it ends up happening.
|
| But if we're going to regulate let's fucking regulate.
|
| To the tech people unhappy with screeching my reply is that
| there is nothing special about your humanity here. Your lives
| aren't more important than the lives of the children of
| employees at the Carrier plant in Indianapolis, or the workers
| at the Amazon faculty on Staten Island.
|
| If your values system only applies to you and your friends it's
| not much of a values system.
| manuelabeledo wrote:
| I find it ironic that you mentioned taxi drivers, since many
| were initially collateral damage, and then moved onto drive
| for Uber or Lyft.
|
| I would say that medallion holders, those with enough capital
| to pay the almost million dollars a license was running for
| around 2010, were the ones getting screwed. And if you ask
| me, I would compare them to whomever invested in SVB. Those
| will not get their money back.
| CPLX wrote:
| Just click the link, that's exactly who the article is
| about. In those specific cases they aren't moving on to
| Uber and Lyft because they're dead.
|
| They didn't have enough capital for the medallions in hand
| of course, these were mostly immigrant strivers who worked
| and toiled and deeply tapped their entire network of
| friends and family for down payments and were heavily
| leveraged for the rest.
|
| Then Silicon Valley VC's purposefully made it impossible
| for them to compete using a massive wash of cheap capital.
|
| What's that you say? The free market is tough, and they
| should have been able to adequately understand the risks?
| What can you do if they put their money into something and
| it didn't pan out right? The game has rules right? No take
| backs.
|
| Oh.
| manuelabeledo wrote:
| I think you got it wrong.
|
| Regardless of what these articles may say, the vast
| majority of medallions are owned by private companies,
| not independent contractors. Drivers need to be licensed,
| but medallions are associated to cars, not necessarily
| people. And this is not a new phenomenon at all [0]
|
| Effectively, Uber and Lyft did more damage to companies
| than individuals.
|
| Companies that also speculated with the medallion prices
| by the way, as most were bought and sold privately, not
| by governments. How do you think they got to cost a
| million bucks in NYC back in 2013?
|
| [0] https://slate.com/business/2012/06/taxi-medallions-
| how-new-y...
| CPLX wrote:
| What's the substantive difference between the people in
| this industry who got fucked and the startups and their
| employees who might get fucked next week that makes you
| (or the SV online community at least) care about one and
| not the other.
| manuelabeledo wrote:
| Tech companies aren't buying scarce titles that weren't
| mean to be speculated with. They are bank customers. That
| is the main difference.
|
| That doesn't mean we shouldn't be concerned about those
| who lost their jobs because highly speculative investment
| companies went under, but it is clearly not the same.
| CPLX wrote:
| What's not the same about it? Explain it to me.
|
| Why should I care more about a startup worker who doesn't
| get a paycheck next week than a taxi driver who can no
| longer feed his family because of new market entrants or
| a laid off machinist in an industry struggling to compete
| with subsidized overseas labor.
|
| Make it simple I'm dumb and think each of them has the
| same claim on human dignity and a financial safety net.
| mark_l_watson wrote:
| I agree with you, except for the comment about Libertarians.
| Let me assure you, as a member of the Libertarian Party, that
| we don't in general like or support government bailout of
| special interests.
|
| I 100% agree with you about the chutzpah level being really
| annoying! I also like your comments about the groups of
| workers adversely affected in the past.
| thinkmassive wrote:
| > My feeds are full of sociopathic libertarians calling for
| government to make sure they never suffer any consequences
| for their failure to adequately manage risk?
|
| Not sure to whom you're referring, but they're not
| libertarians.
| [deleted]
| CPLX wrote:
| I mean literally nobody is a libertarian by the dictionary
| definition, there aren't any on the planet. It's just a
| word people use to describe a value system where
| governments only help _people like them_ and everyone else
| gets fucked.
|
| They sure talked a good game though.
| tome wrote:
| No true libertarian.
| CPLX wrote:
| Show me one.
| tome wrote:
| When you show me a true Scotsman. (I was attempting to
| make a wry joke.)
| CPLX wrote:
| Indeed. The difference is that there are actually people
| living in Scotland.
| gwright wrote:
| > I mean literally nobody is a libertarian by the
| dictionary definition
|
| And is anyone a "democrat" or "republican" or "socialist"
| (note small "d", "r", and "s") by the dictionary
| definition?
|
| All I'm saying is that failing to behave strictly
| according to dictionary definitions is common to all
| humans not just "libertarians".
| nhod wrote:
| Regarding the VC-fueled "onslaught" on the regular old taxi
| drivers, perhaps you are too young to remember what life was
| like before Uber and Lyft? Before those companies gave
| literally millions of people around the world the ability to
| just up and have a job, with very little hassle? Which
| obviously has its own issues.
|
| But then wait. Zoom out. The former system did too. The new
| companies disrupted the absurd, customer-hostile, worker-
| hostile, cartel-like monopolies those legacy industries had
| evolved into. Did you ever try getting a taxi in any US city
| besides Manhattan -- not even the rest of NYC -- before Uber?
| It was expensive, frustrating, and completely lacking in
| integrity.
|
| I remember calling taxis to go the airport in SF before Uber
| existed and nearly missing my flight on multiple occasions
| because the government-granted taxi monopoly I ordered from
| the day before just never showed up at 5am, and oh by the way
| the company is closed at 5am, so wouldn't answer the phone,
| but would still try to charge you and tell you _you_ missed
| your taxi when it showed up and hour late while you were
| cussing them out the entire drive to the airport in your own
| car so you could pay the airport parking monopoly absurd
| rates so you didn 't miss your flight. Yep, I want that
| system back.
|
| Taxis were absolutely terrible before Uber, and they _only_
| benefitted taxi companies, the banks that financed them, and
| then maybe in some cases taxi drivers. Frankly, fuck those
| old taxi companies. Good riddens.
|
| This is the nature of disruption. Entrepreneurs have a
| negative experience with an entrenched industry, have a
| lightbulb moment, raise some money (or not -- that path
| actually exists, though it isn't often discussed here),
| disrupt the often terrible old industry and create a new
| market, dominate the new market, and then often stop
| innovating and focus on keeping out competitors and
| protecting their rents. Then the cycle repeats.
|
| The disruption cycle existed before Silicon Valley VCs got
| involved. It is happening right now to Silicon Valley-fueled
| (and -fueler) Google and (Silicon Valley-fueled) AI LLM
| chatbots. Google once seemed unstoppable, and suddenly
| people, including apparently Google, think it's vulnerable.
| It happened with the iPhone and Nokia and Blackberry! Yet no
| one will stand up for the poor candy bar phone designers, or
| soon the poor AdWords salespeople, because something much
| newer and ostensibly better has come along.
|
| It's literally a tale as old as time, though like any
| historic cycle it is on increasingly shorter timelines.
| Protectionist, rent-seeking, and in some cases full-on
| colluding legacy industries merely try to keep their grip on
| the market through their own forms of financial and political
| engineering rather than seeking to innovate on their own.
|
| So the quaint pastoral notion of the innocent taxi companies
| being obliterated before terrible Uber came along is just
| flat out wrong. They knew that they were rent-seeking, they
| knew they could innovate, and they just didn't fix it. Even
| after Uber came out, for many years they sought -- are still
| seeking? -- to defend themselves rather than create a better
| customer and worker experience.
|
| As for, "if we're going to regulate let's fucking regulate,"
| that is actually what gets us the entrenched industries
| described above. Which "we" might collectively agree we want
| in some cases. We just need to be aware of what the second-
| order and beyond consequences of that regulation are likely
| to be. If we regulate in response to this, it is might result
| in the mega banks taking over smaller ones, continuing the
| consolidation and obliterating more local banks like SVB.
|
| Or perhaps what you are saying is let's establish regulations
| where we place the depositors' rights above the rights of the
| banks? Where we separate investment banking from "consumer"
| banking again? I agree. And also, good luck with that! It
| also has second-order and beyond consequences which also
| could suck. Careful hat you wish for.
| CPLX wrote:
| One day someone may come on this message board and say:
|
| Perhaps you are too young to remember what life was like
| before SVB failed? Before banks were made to be more
| responsible with depositor money so people wouldn't be
| hurt, and before the sociopathic fake-libertarian culture
| of Silicon Valley elites was finally dead and buried along
| with a few of their Tahoe cabins and a couple companies
| that advanced innovation by tricking people into ordering
| food from existing restaurants on fake websites?
|
| I remember, they will say, how there was a bank that was so
| dominated by cronyism and collusion that they were forcing
| companies all from one very narrow sector to keep large
| uninsured balances in one bank while they bet all that
| money on long-dated securities for some inexplicable
| reason.
|
| Remember how the bank got people to go along with this
| insane plan by giving the people with fiduciary
| responsibility for these company treasury decisions
| mortgages, even when the banking market in general had
| deemed them too high risk?
|
| Wow that was crazy. Anyways they died. This is the nature
| of disruption. Entrepreneurs have a negative experience
| with an entrenched crony-driven legacy industry, have a
| lightbulb moment, and then build banks that don't do shit
| like that.
|
| So the quaint pastoral notion of the innocent startups and
| VC podcast hosts being obliterated by the terrible
| negligent actions of the government is just wrong. They
| knew they were mispricing risk and they just didn't fix it.
| Even after their bank failed they sought -- are still
| seeking? -- to defend the status quo rather than realize a
| justified loss and create a better and safer banking
| experience.
|
| I look forward to reading these comments in the future.
|
| Just for reference I've been building on the web since
| about 1994. It's a lovely perspective that makes it much
| easier to realize just how fundamentally full of shit all
| these guys are on this topic today.
| acdha wrote:
| > Did you ever try getting a taxi in any US city besides
| Manhattan -- not even the rest of NYC -- before Uber? It
| was expensive, frustrating, and completely lacking in
| integrity.
|
| Yes, lots of times and you're overstating it substantially.
| The only reason Uber was cheaper was that they were heavily
| subsidizing each ride. Once they stopped that, amazingly,
| prices rose to match or exceed cab fares.
|
| The specific area where Uber was better was that many cab
| companies would illegally refuse service to black
| neighborhoods. Uber deserves credit for breaking that but
| these days I'm hearing more anecdotes about drivers
| skipping pickups so I'm not sure that's permanent.
| refulgentis wrote:
| This is facile and representative of so much of the internet.
| Our ears our closed to each other, we cherry pick the weakest
| arguments, or ones that aren't made at all.
|
| No one seriously thinks there's only $250K/client available.
| People are saying the same thing you are, just gleefully.
| joseftexas wrote:
| Depositors are consider investors in banks. 250K and below will
| be insured by Feds. Anything above will be considered like
| civil forfeiture that will be given to debts with higher
| seniority. Salary and bonuses of staff will take the highest
| seniority. Then secured loans. Depositors will likely get a
| portion of their remaining money just before shareholders. This
| is very well established principle. You can go checkout how
| much depositors in Lehman Brothers gotten their money back.
| manuelabeledo wrote:
| > Depositors are consider investors in banks.
|
| This is nowhere near the truth.
|
| If it was, then actual shareholders would recover at least
| $250,000 from their investment. As it stands, shareholders
| are poised to recover pretty much nothing.
| chiefalchemist wrote:
| > "This is a bailout". It would be if shareholders were to get
| their money back, which doesn't seem likely. The government
| will use the bank assets to make customers, not owners, whole.
|
| From the broader public's perception, you're splitting hairs.
| The gov - at taxpayer's expense - *are* ______ing* depositors
| with deposits over $250k. Depositors who are well aware of the
| limits of what's covered. Depositors with more advisors than
| most taxpayers have bank accounts.
|
| Capable and well educated people made poor decisions. Why is
| The Nanny State the solution? Again??
|
| * call it what you want, but it's special treatment of the very
| well to do.
| madamelic wrote:
| > The gov - at taxpayer's expense - _are_ ______ing*
| depositors with deposits over $250k.
|
| The FDIC isn't funded by the government. FDIC runs and
| provides this insurance by premiums paid by banks.
|
| No taxpayer money is going into SVB.
|
| https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp.
| ..
|
| > The FDIC is not supported by public funds; member banks'
| insurance dues are its primary source of funding.
|
| > When dues and the proceeds of bank liquidations are
| insufficient, it can borrow from the federal government, or
| issue debt through the Federal Financing Bank on terms that
| the bank decides.
|
| We are still currently at "using premiums" and moving into
| "liquidating bank assets".
| dantheman wrote:
| Any government money beyond FDIC insured amount is a bailout.
| bradleyjg wrote:
| _" Depositors shouldn't get anything beyond the insured
| $250,000". Then what do we do with the billions in remaining
| assets? Appropriate them, and leave small and mid businesses
| hanged to dry?
|
| "This is a bailout". It would be if shareholders were to get
| their money back, which doesn't seem likely. The government
| will use the bank assets to make customers, not owners, whole._
|
| If the bank had sufficient assets to make all depositors whole
| the FDIC wouldn't have stepped in. It doesn't.
|
| I assume, then, you agree uninsured deposits ought to take a
| haircut proportional to the shortfall?
|
| If so, you have the same position as all the "salty" posters.
| [deleted]
| paulpauper wrote:
| _"This is a bailout". It would be if shareholders were to get
| their money back, which doesn't seem likely. The government
| will use the bank assets to make customers, not owners, whole._
|
| Except shareholders suffered massive or total losses in 2008,
| such as AIG or Washington Mutual, despite it being a bailout. A
| bailout means all depositors are made whole, not the
| shareholders.
| schrodinger wrote:
| Pretty sure shareholders of bailed-out banks[1] weren't
| destroyed. For example JPM is up 155% since it's 2007 pre-
| crash high. That won't be the case for SIVB shareholders.
|
| 1: https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Progra
| m#....
| zerocrates wrote:
| WaMu was not a bailout, it was allowed to fail.
| Invictus0 wrote:
| Yellen doesn't have the ability to do a bailout even if she
| wanted to.
| https://threadreaderapp.com/thread/1634662851657728001.html
| Lionga wrote:
| [flagged]
| KarlKemp wrote:
| The difference is how the bank's investors fare.
| bastian wrote:
| I am not sure why you are so bitter but it's important do
| understand that all you do is create more hate with comments
| like this. The only thing anyone is asking for is to protect
| the deposits of the people who bank(ed) with SVB. That is it.
| mynameishere wrote:
| When a person doesn't want himself and every other ordinary
| person to be robbed by millionaires and billionaires, that is
| not "hate". That is not what "hate" is.
| kreeben wrote:
| Will that not cost anyone anything? If so then sure, let's do
| it!
|
| If it costs more than a dime, though, let's not.
| matwood wrote:
| Making depositors whole is important and should happen.
| Confidence in the banking system is important. A company
| that needs banking should not be subject to the same risk
| as a shareholder.
| Ekaros wrote:
| If depositors gained single penny of interest on their
| deposits. They should have been certain there is some
| risk. Including losing money above 250k. And they have
| less than zero right to cry when risk realises.
| Eisenstein wrote:
| Define 'cost'. If losing faith in the banking system gets
| people to disinvest and hoard under their mattress do you
| count that as 'no cost'?
| jmye wrote:
| Define costs, specifically. What are the 'costs' of
| ensuring that depositors have their money, while taking
| over long-term SVB investments that the government can wait
| out? What are the 'costs' of tens of thousands of job
| losses? What are the specific 'costs' of significant
| centralization of banking, as any new VC would immediately
| require a start-up to move it's money to JPM or GS?
| citizenkeen wrote:
| The cost is that we keep publicizing risk and privatizing
| gains. SVB took advantage of Trump-era deregulation to
| make more profit and now that they've screwed up they
| want help. The people who deposited money at SVB profited
| from those choices and now they also want a bailout.
| bradleyjg wrote:
| _What are the 'costs' of ensuring that depositors have
| their money, while taking over long-term SVB investments
| that the government can wait out?_
|
| Net present value is a well defined concept. No need for
| scare quotes.
| chewz wrote:
| Op is not bitter but realistic... Deposits are insured up to
| 250 thousand. Above they do incur risk..
| badrabbit wrote:
| Both you, op and others are being ignorant on this.
| Insurance payment or bailout is external money, this is
| making depositors whole using the bank's assets, not FDIC
| or government money. Tax payers are not making anyone whole
| as I understand yellen's proposal.
| morelisp wrote:
| But this is literally what was going to happen as soon as
| the FDIC moved in. If that's all they want, why all the
| extra noise?
| mtremsal wrote:
| Because there are tons of people, including in this very
| thread, who are confused and calling this a bailout.
| remote_phone wrote:
| When the government has to step in and use money to back
| things up, that's a bailout. "Making depositors whole"
| can only be accomplished if the assets owned by SVB are
| bought for more than their market value, where the
| government is on the hook for the delta. That's a
| bailout.
| morelisp wrote:
| Nope. YC and other investors are explicitly asking for
| something beyond the normal process - no possible
| haircuts, no delays, $10M guaranteed, whatever. That
| can't be covered just by SVB assets. (It can be _mostly_
| covered. But that 's not what they're begging for.)
|
| And that's without getting into the question of whether
| they should be allowed to still reap the rewards of being
| a customer of a risk-taking bank for years before the
| event.
| macintux wrote:
| What investors are clamoring for and what the government
| has announced are two different things.
| morelisp wrote:
| Please keep this subthread's context in mind - it starts
| with
|
| > The only thing anyone is asking for...
|
| And my comment is about what those people are asking for.
| They're claiming they're not asking for a bailout, while
| asking for a bailout. They are confused, or lying, or
| both.
| macintux wrote:
| Fair enough.
| mtremsal wrote:
| The solvency gap is minuscule and there are known buyers
| lining up. They will pay a premium to acquire the
| business of 40k companies (and whatever is left of the
| brand) and that capital (along with the assets) is
| ensuring creditors are made whole while shareholders get
| wiped. There is no bailout; people just seem to project
| 2007 onto a completely different situation.
| morelisp wrote:
| From your mouth to god's ears, but this isn't what Tan,
| Cuban, Sacks, etc. have been asking for. They want a 100%
| commitment from the government.
| mtremsal wrote:
| Yes, the way I read this request (and Yelen's response)
| the government's "commitment" is meant to provide a floor
| for private offers so as to immediately address concerns,
| not as a primary path forward.
| morelisp wrote:
| Founders drained the whole Bay Area of anything culturally
| interesting, tech companies all just did massive layoffs,
| years of shouting "learn to code" at every other profession,
| the world's art output fed into an AI meat grinder with
| "whoops sorry but also it's legally okay" to enrich a few
| VCs, but you can't imagine why someone might be bitter about
| demands to compensate their business mistakes from the public
| purse?
| booleandilemma wrote:
| I love the AI meat grinder analogy, wow.
| UncleEntity wrote:
| > Founders drained the whole Bay Area of anything
| culturally interesting...
|
| I grew up in the Bay Area in the 70s and 80s and it wasn't
| all that culturally interesting back then either.
| gonzo41 wrote:
| SVB probably has enough assets to make most depositors largely
| whole, but it'll take time. Shareholders are going to wear a
| total loss. Which sucks for them but this is part of share
| market game.
|
| I suspect cooler heads will not prevail. And there will be much
| silliness Monday morning.
| oceanplexian wrote:
| This keeps getting repeated, but no, they don't have enough
| assets to make depositors whole.
|
| A bond that matures in 10 years does not make anyone whole.
| That's like saying "I know I owe you money today, but don't
| sweat it, I'll get you the money in 10 years". These
| arguments completely ignore the time value of money.
| Ekaros wrote:
| So just fire sale everything and distribute equally to
| depositors. Time value of money solved. And everyone gets
| fully what belongs to them.
| somewhereoutth wrote:
| Exactly. Somebody has to eat the loss, maybe depositors,
| maybe the taxpayer.
|
| And somewhere, someone (some many), was on the other end of
| those trades - or not on the other end of trades that
| should have been made, and has made a gain.
| gonzo41 wrote:
| I didn't say totally whole, i said largely whole. Everyone
| will get at least 250K, and then probably something like
| 75-85% of what ever else they had relatively quickly and
| then who knows.
| relativ575 wrote:
| > they don't have enough assets to make depositors whole.
|
| They do, if their assets get acquired by other banks who
| also invest in long term bonds, says at a discount?
| mgfist wrote:
| > They do, if their assets get acquired by other banks
| who also invest in long term bonds, says at a discount?
|
| "Hi it's me, rival bank. I'll buy those bonds of yours,
| buuut my best offer is 70 cents on the dollar".
| UncleEntity wrote:
| Hi, it's me, Uncle Sam, I'll buy those assets at face
| value because that's what I do. No Open Market Committee
| buying of the stocks, though.
| sithlord wrote:
| a bailout, would mean the bank and its shareholders would
| survive. Making depositors whole is about not having people
| lose faith in the banking industry.
| peterbonney wrote:
| At the risk of stating the obvious, she didn't actually say
| anything that implies more than "the FDIC is doing its job"
| (helping depositors). There's a lot being read into it that I
| don't think is there.
| rahimnathwani wrote:
| She ruled out a bailout of SVB's shareholders, but hasn't ruled
| out a bailout of SVB's depositors.
| tialaramex wrote:
| Ordinarily in the UK, although the legal rule says PS85 000 is
| protected per person per bank, in practice the government has
| typically paid all depositors in full up front even though it
| takes some time to recover the value of the bank's assets.
| Politically this is a good idea if it's affordable because even
| if many depositors are unsympathetic, it only takes a few good
| causes to make you look like heartless bastards.
|
| Of course, the UK banks are obeying Basel III, whereas SVB had
| fought hard _not_ to be obliged to obey similar US rules because
| they 're less risky (and thus, less profitable when things go
| well...). Obviously the liquidity protections in Basel III
| wouldn't be enough to prevent a run this huge from overwhelming
| the bank, but the capital requirements may well have meant
| depositors were less likely to begin such a run, and would also
| surely make it easier to successfully liquidate the bank if that
| became necessary.
|
| https://www.bis.org/bcbs/basel3.htm
|
| One reason to pay _depositors_ (not shareholders, fuck 'em) is
| to shore up confidence in other banks. If I know I will get my
| money anyway, when I hear Local Bank might be fucked, there's
| less rush to withdraw my money, thus less risk of a run on Local
| Bank, thus they are less likely to actually fail. This is why
| FDIC exists, and why functionally similar (though very different
| mechanically) schemes exist in many developed countries.
|
| If the US feels obliged to give SVB depositors their money
| anyway, the lesson is that you can't afford to have banks which
| will be so vulnerable, they all need to obey Basel III or
| equivalent (perhaps even more stringent) rules locally.
| SeetheSVBcels wrote:
| [dead]
| belter wrote:
| "Let me be clear that during the financial crisis, there were
| investors and owners of systemic large banks that were bailed out
| . . . and the reforms that have been put in place means we are
| not going to do that again," Yellen said.
| cpncrunch wrote:
| Those reforms were rolled back for medium sized banks in 2018
| after lobbying from svb and others. Im not quite sure what to
| make of all this, except to be glad I live in Canada.
| sithlord wrote:
| This actually makes a ton of sense, lets not forget that a
| bailout in this term is really pointing towards saving the bank
| itself, and its shareholders. There is inherent risk in equity
| investments, and it likely should have to suffer for its poor
| decisions.
|
| But when it comes to depositors, I think it makes a lot of sense
| to make them whole, especially in the case of SVB where the bank
| likely has pretty close to enough assets to cover the liabilities
| (deposits), but its tied up in such long term investments that it
| could take a long time to get it out.
|
| But moreso, when we invest in companies, we deep down know there
| is a possibility of the investment going to 0. We often don't
| think when I put money in a bank it can go belly up, this would
| obviously hurt the trust in our banking environment if depositors
| not made whole.
| shrimpx wrote:
| This is an implicit argument for de-privatizing banking. There
| is _inherent risk_ of losing your uninsured money when you lend
| it to a private company. If all deposits were to be fully
| insured we're talking public banking, or much worse, private
| for-profit banking that is fully de-risked by taxpayers,
| incentivizing execs to make arbitrarily risky decisions and,
| basically, freely take however much money they want from tax
| coffers.
| hanoz wrote:
| Bailing out the owners is obviously completely out of the
| question, but why bail out the depositors beyond the guarantees
| they knew they were getting at the time?
|
| Funny how language is being used to frame all this. For
| depositors it's _made whole_ , not _bailed out_ , when of
| course it's no less a bail out.
| macintux wrote:
| Because businesses need to be able to pay their employees,
| because the banking system as a whole relies on trust to
| function.
|
| And because we're not really bailing out depositors. The FDIC
| is just doing its best to make sure depositors take
| precedence over bank shareholders, which is as it should be.
|
| Sure, you could let Roku lose a half billion dollars, but
| it's not their fault SVB couldn't meet its obligations. They
| didn't _invest_ in the bank. Placing your money in a bank
| should not be a gamble.
| luckylion wrote:
| Why are you pretending that Roku would get $250k and not a
| cent more? They won't. The bank has plenty of assets,
| they'll take a 5% loss for their strategy of taking on
| counter party risk, not a 99% loss.
|
| Everyone is going to be able to pay their employees, unless
| they're looking for a reason not to.
| macintux wrote:
| I was replying primarily to this sentence.
|
| > For depositors it's made whole, not bailed out, when of
| course it's no less a bail out.
|
| It's _not_ a bail out for depositors.
| luckylion wrote:
| But if they were to get 100% of their deposits, even if
| the bank's assets would only cover e.g. 95%, it would be
| a bail out, wouldn't it? The government would step in and
| cover the difference with tax payer money.
|
| Because that seems to be what some people are demanding,
| but they don't use the term bailout, because of the
| connotations.
| macintux wrote:
| Yes, that would be a bailout. That's not what the
| government is talking about (yet).
| luckylion wrote:
| But that's what everyone is talking about when they say
| the government "should make depositors whole", because
| otherwise they won't be getting their whole money back.
| And clearly nobody would say "I want the government to
| follow the known procedures, get your congressman on the
| phone today". They want the government to deviate from
| the known and agreed upon procedures: they want a
| bailout.
|
| There wouldn't be any necessity to say anything at all if
| that wasn't their demand.
| nodemaker wrote:
| Businesses need to pay their employees from the money they
| have not from taxpayer money. If a business loses that
| money because their banking partner lost the money,
| taxpayers have no obligation to help (beyond the 250k)
| macintux wrote:
| Taxpayers benefit enormously from a banking system that
| isn't a crapshoot. Workers benefit from businesses being
| able to make payroll.
|
| The government isn't offering to bail out depositors. And
| taxpayers aren't even paying the $250k, that's from an
| insurance fund paid into by banks.
| SkyPuncher wrote:
| > Taxpayers benefit enormously from a banking system that
| isn't a crapshoot.
|
| I wonder how many people here would be screaming the
| exact opposite if this was their personal banking
| account?
|
| Yes, you can spread your money among multiple accounts.
| However, data shows it's exceedingly rare (1) an
| individual bank to fail (2) depositors to loose any money
| when a bank fails.
|
| According to the FDIC list of failed banks [0], there
| have only been 17 bank failures in the past 5 years. It's
| been 9 years since a bank has failed without finding an
| acquirer.
|
| To say this is something you must plan for is a bit of a
| stretch.
|
| * https://www.fdic.gov/resources/resolutions/bank-
| failures/fai...
| nodemaker wrote:
| Can the banking system learn from this and improve? For
| sure it can and that would benefit everyone. But we cant
| retroactively change the rules. In fact you can argue
| that people would vote more pro-legistation if something
| like this was allowed to fail like it should and that
| would protect more people in the long run.
|
| And yes if an insurance fund pays for it then I am all
| for it. Someone other than the taxpayer has to foot this
| bill thats all.
| macintux wrote:
| Each time we learn new things, impose new regulations,
| and make new mistakes.
| colinmorelli wrote:
| The only way taxpayers avoid footing the bill here is if
| the FDIC can sell assets to cover 100% of deposits in a
| very short timeframe, or if another bank comes in and
| agrees to cover the shortfall.
|
| In any other scenario, if businesses with deposits in SVB
| lose some material amount of their cash, people will be
| getting laid off, prices will increase for some goods,
| and some companies will fail. All of these things
| negatively impact taxpayers.
|
| It's not clear to me what the better outcome here is, but
| this is going to affect everyday people either way.
| yterdy wrote:
| Neither of the first two are happening, and in any case,
| would result in losses by another name (because the
| assets are likely not worth 100% of deposits, and any
| buyer would have to adjust their business to eat that
| shortfall).
|
| There is no evidence that your doomsday set of "any other
| scenario"s would be any more destructive than bailing out
| companies that are evidently poor at managing their risk,
| and - as startups - are at a generally high risk of
| folding in the future anyway. Such a bailout constitutes
| a headfirst dive into the sunk cost fallacy. Are the
| people who lose their jobs more or less likely to have a
| network that will help them find a job, compared to those
| who will lose the taxpayer-funded services cut to pay for
| a bailout? Are the startups in question actually
| producing anything of material worth to the average
| American's budget? Frankly: do we care if these
| businesses fail? Maybe some of us would be happy to see
| them go away?
| colinmorelli wrote:
| I quite literally said in the message you're replying to
| "It's not clear what the better outcome is here" so I'm
| not really opining on what's preferable. It doesn't
| change the reality that this is going to impact "regular
| people" in the end whether it's intentional and direct in
| the form of a bailout, or indirect in the form of
| layoffs.
|
| To your questions: The companies you'd prefer to see shut
| down almost certainly will outside of the zero interest
| rate environment we've recently excited. But there's
| quite a big difference between businesses running their
| course and dying, and them rapidly laying off employees
| alongside one another because they just lost much of
| their runway. Mass layoffs create a sudden oversupply of
| candidates and strain the system, making it more
| difficult for those laid off to find new jobs.
|
| While I'd prefer businesses not die for "random chance"
| of having chosen the wrong bank, my concerns here are not
| for the companies themselves. I'm much more worried about
| the downstream impact of employees who will go without
| wages or systemic failures of other banks if we can't
| regain confidence quickly.
| tome wrote:
| > if businesses with deposits in SVB lose some material
| amount of their cash, people will be getting laid off,
| prices will increase for some goods
|
| Why so necessarily? The first thing to happen is that
| their equity holders will take a hit. Only then will the
| other things you state happen. And if the equity holders
| take a hit, well, that's exactly why they're equity
| holders.
| colinmorelli wrote:
| Losing deposits means losing cash flow to fund runway.
| Many tech companies just spent the last year optimizing
| to get 18-24 months cash runway. If they just lost
| several months of that, they will need to recover it
| somehow. That will come either from layoffs or increasing
| prices.
|
| Similarly, companies raise capital to achieve goals. If
| 10-20% of that capital vaporizes, the ability to achieve
| those goals will be harmed. Some companies will not
| achieve those goals, and may be unable to raise future
| financing.
|
| We're talking about operating cash for these companies.
| The hit to equity holders is not the problem right now.
|
| Of course my comments above refer mostly to venture
| backed tech companies, but that represents a significant
| share of SVB's clients.
| tome wrote:
| > Many tech companies just spent the last year optimizing
| to get 18-24 months cash runway. If they just lost
| several months of that, they will need to recover it
| somehow. That will come either from layoffs or increasing
| prices.
|
| Or by raising earlier than expected, as a down round? I
| don't understand why a solid company would be in trouble
| (though I'm not convinced that a high proportion of SV
| companies are actually solid).
| colinmorelli wrote:
| > Or by raising earlier than expected, as a down round?
|
| Raising down rounds will be lower on the priority list to
| layoffs. Most companies would vastly prefer to buy more
| time to grow into their next milestone than to admit they
| can't achieve it and raise at a lower valuation. We
| generally know this to be true, in part because we just
| watched it happen across the entire tech ecosystem over
| the last ~12 months or so.
|
| Logically, it makes sense. VC backed startups operate on
| optics and momentum. Layoffs are recoverable, failing to
| hit goals is much less so (I'm speaking purely about
| optics here, not my personal preference).
|
| > though I'm not convinced that a high proportion of SV
| companies are actually solid
|
| This is likely accurate. But that's not necessarily
| criticism, most companies in their early days aren't
| "solid" (if by solid you mean default alive and/or having
| a path to profitability). SVB is overly exposed to these
| types of clients, which is why I think there stands to be
| a large impact here if depositors need to take a 10-20%
| haircut.
| tome wrote:
| Yes, you have convincing points. I guess I just don't
| like the way most of SV works.
| colinmorelli wrote:
| I hear you. Having run a venture backed startup myself,
| my opinion on how modern venture businesses work is...not
| at its highest point, to say the least.
|
| At the same time, I really have a preference for people
| who didn't sign up for this kind of risk (I.e. most
| companies are Seed-Series B companies who understood the
| risk that the company might fail, but not the risk that
| their company had all their cash in one bank that
| failed), to not be laid off as a result of this.
|
| It's a tough time.
| nodemaker wrote:
| Life is not fair! A lot of times bad things happen due to
| no fault of your own. That doesnt mean government should
| come bail you out. In fact I am bootstrapping a business
| and if you dont let this event kill all my competition I
| would call that really unfair.
|
| Furthermore it is unlikely this will even affect anyone
| that is actually vulnerable like workers at Walmart for
| example.
| colinmorelli wrote:
| There are _plenty_ of workers at tech companies that are
| extremely vulnerable. It 's an absolute myth that
| startups employ only 6-figure salary earning tech
| employees.
|
| Regardless, you're not replying to a thread where anyone
| claimed that the government should bail anyone out.
| You're replying to a thread where I mentioned that
| taxpayers are going to foot this bill one way or another.
| Either because the government does bail out the bank, or
| because regular taxpayers lose their jobs in the fallout.
| lambo4bkfast wrote:
| Taxpayers do have an obligation to ensure that I do not
| view my checking account as a risky loan to the bank...
| It is not a positive outcome for taxpayers if they no
| longer view their deposits as safe. $250k is also a
| ridiculously low insurance amount for any company with a
| non-trivial number of employees.
| admax88qqq wrote:
| Taxpayers arn't paying the 250k, the FDIC is funded by
| fees they charge the banks, not taxpayers.
| SkyPuncher wrote:
| > Bailing out the owners is obviously completely out of the
| question, but why bail out the depositors beyond the
| guarantees they knew they were getting at the time?
|
| The insured amount is absolutely guaranteed. However, it's
| still standard for a failed bank to make it's depositors
| whole.
|
| I don't have sources, but data I've seen indicates of the
| nearly 600 bank failures since 2000, few, if any, have
| resulted in a loss of deposits.
|
| ----
|
| Put another way. Most employees don't have contractual
| obligations to receive severance. However, it's culturally
| expected that businesses performing layoffs will offer
| severance. Those who don't risk people not coming to work for
| them.\
|
| Same situation in the US. The USD and it's banking system is
| seen as incredibly stable and robust. When chinks start to
| form, it raises concern and people might start looking to
| bank in other currencies.
| stanleydrew wrote:
| It's a matter of differing expectations.
|
| When you purchase stock in a bank, there is a reasonable
| expectation that your investment could lose value.
|
| When you deposit money with a bank (in the United States in
| 2023), you basically never consider the possibility that you
| might not get it all back.
|
| You can certainly argue that the expectation isn't fair, but
| I'm pretty confident it's nearly universal.
| hanoz wrote:
| In Britain the protected amount is PS85k per person per
| banking group, and it's universal that anyone with more
| than that splits it over accounts with multiple banks,
| taking care to make sure the banks aren't part of the same
| banking group.
|
| Is it any different over there, albeit for the rather
| higher limit, in America?
| stanleydrew wrote:
| The whole reason we're having this discussion is that it
| appears to not be universal for anyone with more than the
| insured limit to split deposits over multiple accounts.
|
| But there's also a big distinction between the working
| capital required for a business and the size of e.g. a
| personal savings account, which is kind of getting lost
| here.
|
| If your payroll is $1M every month then it may not really
| be practical to split deposits across many accounts.
| tome wrote:
| > If your payroll is $1M every month then it may not
| really be practical to split deposits across many
| accounts.
|
| Why not? That's only four accounts' worth of full
| protection.
| Kephael wrote:
| Sure you do, banks fail and you shouldn't expect more than
| $250,000 of coverage.
| tome wrote:
| > When you deposit money with a bank (in the United States
| in 2023), you basically never consider the possibility that
| you might not get it all back.
|
| This is an assumption which desperately needs to change, in
| my opinion, otherwise the risk of bank runs will be a think
| ad infinitum.
| stanleydrew wrote:
| Isn't the risk of bank runs _increased_ without this
| assumption? If we 're all consistently attentive and
| worried that we may not get our bank deposits back, then
| every minor hiccup at a bank could plausibly cause a run.
| tome wrote:
| I wonder if it works at both extremes:
|
| 1. if you know your deposits are at risk then you
| actively work to derisk them, for example placing most of
| your cash in T-Bills.
|
| 2. if you know your deposits are safe then you just keep
| them in the bank.
|
| The middle seems less stable.
| chiefalchemist wrote:
| Makes sense? Why??
|
| Why in 2023 after other similar events is this special?
|
| Accounts are insured to the specifed limit. That applies to all
| of us. Full stop.
|
| What (read: who) makes this a special case in need of special
| treatment?
| [deleted]
| koolba wrote:
| > But when it comes to depositors, I think it makes a lot of
| sense to make them whole, especially in the case of SVB where
| the bank likely has pretty close to enough assets to cover the
| liabilities (deposits), but its tied up in such long term
| investments that it could take a long time to get it out.
|
| If anybody gets an extra penny more than $250K from the Feds
| than that is by definition a bailout.
|
| > But moreso, when we invest in companies, we deep down know
| there is a possibility of the investment going to 0. We often
| don't think when I put money in a bank it can go belly up, this
| would obviously hurt the trust in our banking environment if
| depositors not made whole.
|
| FDIC insurance is not infinite. Not understanding that is no
| fault of the rest of society.
|
| And who knows what perks, direct or indirect, those depositors
| were getting for having that cash at SVB?
|
| Whether it's stupidity or greed doesn't matter. No hand outs.
| stanleydrew wrote:
| > If anybody gets an extra penny more than $250K from the
| Feds than that is by definition a bailout.
|
| I think this is naive. The FDIC or some government entity is
| in a pretty reasonable position to take on the longer
| duration assets that appear to have brought down SVB. If they
| hold those assets to maturity then everything is fine, and
| they can return deposits today if necessary because they
| don't need to sell assets to generate cash.
| tome wrote:
| > If they hold those assets to maturity then everything is
| fine, and they can return deposits today if necessary
| because they don't need to sell assets to generate cash.
|
| The federal government will be out of pocket by the
| interest rate spread if it does that. That _is_ a bailout.
| rtpg wrote:
| > FDIC insurance is not infinite. Not understanding that is
| no fault of the rest of society.
|
| I think we should really not forget that SVB hit duration
| risk on their assets that is almost definitionally not an
| issue for the FDIC. This isn't "bank fell apart due to bad
| loans" this is "bank fell apart because money is locked away
| for 10 years but is basically guaranteed".
|
| Basically no risk to taxpayers!
| koolba wrote:
| > This isn't "bank fell apart due to bad loans" this is
| "bank fell apart because money is locked away for 10 years
| but is basically guaranteed".
|
| They fell apart due to greed. Not being satisfied with low
| short term rates that matched their short term liabilities.
|
| They gambled on longer durations and got burned. It's not
| the tax payers responsibility to cover their gambling
| losses.
| skwirl wrote:
| > FDIC insurance is not infinite. Not understanding that is
| no fault of the rest of society.
|
| I hope you realize FDIC insurance isn't even guaranteed to be
| $250k. The FDIC is funded by member fees and can only cover a
| very small amount of "insured" losses. If it goes beyond
| that, depositors would need a bailout.
| nipponese wrote:
| Additionally, it sounds like a total depositor "bailout" is
| just float until the receivership can unload the banks
| assets
| ericmay wrote:
| It's practically infinite precisely because if a bank goes
| under and you lose your checking account the entire banking
| system immediately collapses and there is a _real_ bank run
| 1920s style.
|
| I look at the FDIC and its ability to either pay or be
| bailed out to pay as an existential function of the State
| (US specific) and the inability to do so threatens its
| existence.
| skwirl wrote:
| You are making the same kind of argument that people
| asking for SVB depositors to be made whole are making.
| ericmay wrote:
| It's not because the FDIC insurance is for the masses -
| everyday workers and waiters and taxi drivers and
| teachers. Lack of it can cause a revolution and actually
| destroy the economy whereas SVB will bring some companies
| down with it (unless investors take care of their
| portfolio companies) and VCs will send lots of Tweets and
| stuff.
|
| The scale is extremely important.
|
| But also we didn't bail out Enron shareholders including
| regular folks who lost their life savings - this is more
| akin to that or something similar. VCs are professionals
| and sometimes shit happens and this time some of them got
| screwed (undeservedly) but screwed nonetheless. But it's
| no different than the employees losing their jobs or when
| someone up and moves a factory - we don't bail them out
| either and they also get screwed.
| bagels wrote:
| We shouldn't accept that bank deposits should be as risky
| as investments. Functioning low risk bank deposits
| benefit all of us.
| ericmay wrote:
| Low risk is not the same as no-risk. FDIC amounts will be
| returned and bank assets will be sold to cover deposits
| as much as possible. Outside of an investigation into any
| wrongdoing that should be the end of the involvement of
| taxpayers. VC firms should protect their investments or
| the government should get an equity stake or favorable
| loan terms for remaining balances. It's really bad for
| the free market to signal that all banking is risk free
| for any corporation. If we are going to do that then just
| nationalize the banks and cut out the middle person.
| [deleted]
| [deleted]
| nipponese wrote:
| Don't you think there is a huge difference between the bank
| shareholders getting bailed out and depositors getting bailed
| out?
|
| Let's think about the risk of "morale hazard" in these case:
| Bail out the shareholders: we can throw more money into the
| stock and never lose money! Risk free returns, I better pump
| this bubble up! Bail out depositors: I feel safe having my
| money in a reputable bank! I can operate my business and pay
| vendors/employees, I can keep doing my job without
| interruption.
|
| Bailing out one group makes them greedy, bailing out the
| other makes them productive.
|
| This is not old testament judgement, this is a financial war
| and our gov has to use every appropriate tool to fight it.
| koolba wrote:
| > Don't you think there is a huge difference between the
| bank shareholders getting bailed out and depositors getting
| bailed out?
|
| Of course they're different. But they're both bail outs.
|
| If my house burns down and I have $250K of home owners
| insurance, do I get the rest covered by the Feds?
|
| > Let's think about the risk of "morale hazard" in these
| case: Bail out the shareholders: we can throw more money
| into the stock and never lose money! Risk free returns, I
| better pump this bubble up! Bail out depositors: I feel
| safe having my money in a reputable bank! I can operate my
| business and pay vendors/employees, I can keep doing my job
| without interruption.
|
| SVB, and banks in general, offer incentives for people to
| deposit money. It can be anything from account bonuses to
| non-monetary perks like access to other sources of capital.
| To say that depositors had nothing to do with the losses is
| extremely naive.
|
| > Bailing out one group makes them greedy, bailing out the
| other makes them productive.
|
| They're both greedy. Or stupid. Or both. Either way, no
| hand outs.
|
| > This is not old testament judgement, this is a financial
| war and our gov has to use every appropriate tool to fight
| it.
|
| The government does work solely for the depositors or
| investors of SVB. It works for all of us and we've
| established rules for when it is authorized to step in and
| provide both liquidity and direct bail outs.
|
| Romanticizing a specific customer base does not earn them
| special treatment.
| nipponese wrote:
| > If my house burns down and I have $250K of home owners
| insurance, do I get the rest covered by the Feds?
|
| Not on your home, no.
|
| But if it were your factory and you were responsible for
| a respectable percentage of the workforce being able to
| put food on their tables, I would hope a gov entity step
| in and try to reduce friction for getting the factory
| back on its feet.
|
| And again, that reduced friction doesn't need to be a
| check to you, it could simply be forced asset sale.
| nodemaker wrote:
| There is not much difference if you look at it from the
| point of view that one of those parties was just
| underestimating the risk they were taking (which is true of
| all bad decisions in life). I see no reason to bail out
| depositors over 250k
| nipponese wrote:
| When you capitalize a bank with deposits, are you really
| an "investor" with expected risk/reward?
|
| I am not for totally punishing someone who expects a
| near-zero return on a loan, especially when they made the
| loan with the expectation the borrower would help other
| businesses be productive.
| nodemaker wrote:
| We should not take for granted that value can be
| transferred through time for free and without any risks.
| When you give another party control of your money
| (including a bank) they make decisions on your behalf for
| which there are consequences.
| NotACop182 wrote:
| Did they help depositors that lost money in the last 500+ bank
| collapses? Why do they get special treatment? The government
| has laws and rules the depositors are insured up to 250k.
| Either they liquidate and everyone takes a hair cut. Or they
| wait till the bonds mature and can pay them out. But the
| government should not relieve anyone past what is legally
| available.
| skwirl wrote:
| > Did they help depositors that lost money in the last 500+
| bank collapses?
|
| Yes. Anything else?
| travisjungroth wrote:
| [sounds of goalposts shifting]
| dap wrote:
| Not special treatment? The FDIC has been doing this for
| recent bank failures:
|
| https://www.americanbanker.com/opinion/will-fdic-keep-
| protec...
| kshacker wrote:
| We do not know what specifically they are going to do.
| Helping depositors may just mean expediting the recovery
| process even if there is a 10% haircut. It could mean
| something else. The government forced the sale of countrywide
| and other companies so this would be no different.
|
| Also the term "too big to fail" comes to mind. Isolated risk
| vs systemic risk. Which one is it now? We can have opinions
| but Yellen may have more informed data about the gravity of
| the situation. It does make sense for governments to
| intervene in systemic risks such as this and covid.
| sithlord wrote:
| My guess ( I havn't looked at is the last ones ) is that the
| majority of deposits were well under 250k, and that hundreds
| of thousands of jobs weren't on the line.
|
| Also, you are talking about a major banking collapse if
| people start thinking that their deposits aren't safe. (a lot
| of people will start pulling money, even if under 250k).
| There are so many irrational people out there...
|
| edit: I guess somewhere in what I said was confusing, I was
| referring to past fails where most deposits were likely well
| under the 250k. NOT SVB where the vast majority were well
| above that threshold.
| Mistletoe wrote:
| With this place the majority were over 250k. Something like
| 97% or something. It was a big bank for businesses. Why
| they were bizarrely keeping such large sums in one bank
| account I don't understand. Roku had almost $500 million
| there.
| [deleted]
| rapsey wrote:
| SVB claimed the money is in treasury bills not just cash
| in the account. Which is a completely sensible place to
| put it.
| tsimionescu wrote:
| Apparently much of the money was in long-term treasury
| bills, which is only perfectly sensible if you believe
| you will not have to access that money for 5-10 years.
| chipgap98 wrote:
| No it isn't. You're exposing yourself to interest rate
| risk when doing that
| ehzy wrote:
| Not in any meaningful sense if you are only looking to
| park the money safely and hold to maturity.
|
| Buying 3 month T bills won't pay much, but it will pay
| more than the interest SVB pays on your checking account
| balance and importantly is backed by the full faith and
| credit of the us govt.
| Kephael wrote:
| Yeah, you can short eurodollars or maybe something else
| to hedge risk. At a certain point, you need to be
| sophisticated enough to manage your funds.
| [deleted]
| IG_Semmelweiss wrote:
| Thats not true. It was said elsewhere in HN thread and also
| in several articles online.
|
| The majority of avg deposits were NOT < 250K.
|
| Only 3-7% of SVB accounts under FDIC limits.
|
| Edit: corrected to have specific languange
| rtpg wrote:
| I think this is referring to other banks, not SVB's
| special case.
| giaour wrote:
| Where did the 3-7% of accounts number come from?
|
| According to [0], regulatory filings disclosed that 85%
| of _deposits_ (not accounts) were uninsured.
|
| [0]: https://time.com/6262009/silicon-valley-bank-
| deposit-insuran...
| IG_Semmelweiss wrote:
| their 12/31 10k.
|
| no one knows what it was as of 3.10.23
| wheelerof4te wrote:
| Hey, the FDIC coould raise the limit to, say, 10 million,
| and just let the FED reserve print out the moneys to
| everyone.
|
| Not much different than what the US government is already
| doing. Reached the debt limit? Just raise it again, lol.
|
| /s
| bostik wrote:
| I'm going to copy-paste a good chunk of my answer from an
| earlier thread. (Original:
| https://news.ycombinator.com/item?id=35101797) - the
| article "The Demise of Silicon Valley Bank" wasn't on the
| front page long, probably because it was slightly dry and
| didn't provide any new hot take angles. But it _did_ give
| out actual numbers:
|
| > _As at the end of 2022, it had 37,466 deposit
| customers, each holding in excess of $250,000 per
| account_ -- and -- _The bank does have another 106,420
| customers whose accounts are fully insured but they only
| control $4.8 billion of deposits_
|
| So SVB had only about ~150k banking customers. And of
| those, less than 40k are actually affected by this
| debacle.
|
| -- -- -- --
|
| The numbers are being mixed up, it feels. Only 3% of
| _total deposits_ are covered witn the guaranteed FDIC
| insurance. The rest are spread across less than 40k
| depositors. And the average (not median, but plain
| mathematical average) amount on those accounts appears to
| be $4M.
| sithlord wrote:
| I am stating for prior fails, the number from SVB was
| that only ~3% were insured. Which was my point, that in
| the past, there wern't as many e(a)ffected (and they
| (uninsured) could have received special treatment for all
| I know).
| chipgap98 wrote:
| > is that the majority of deposits were well under 250k
|
| What gives you that indication? The bank specialized in
| working with startups, most of whom have more than $250k in
| the bank
| QuantumSeed wrote:
| S&P Global Market Intelligence reports that as of Dec 31,
| 2022, 97% of Silicon Valley Bank's deposit accounts
| exceeded the $250,000 insurance cap.
| orwin wrote:
| He wasn't talking about SVB but the other 500+ small
| banks that failed in the last 15 years.
| waboremo wrote:
| BusinessInsider[1] has a different view:
|
| >About 37,000 customers accounted for nearly $157 billion
| or 74% of the bank's assets with an average account size of
| over $4 million
|
| So it seems the opposite is almost true, because the
| accounts are valued so high with generally more flexible
| account holders, they're able to move swiftly
|
| [1]: https://www.businessinsider.com/how-silicon-valley-
| bank-impl...
| giaour wrote:
| GP is talking about the majority of _accounts_ , and the
| number you cite is a percentage of _funds_. If 98 people
| have an account with $1 in it and one person has an
| account with $102, then 51% of the bank 's assets are in
| accounts > $100, and the vast majority of accounts have
| $1.
| waboremo wrote:
| What makes you think the majority of accounts would
| operate that way? Seems ridiculous considering it's SVB,
| not your average bank.
| giaour wrote:
| I would expect larger accounts to make the percentage of
| _deposits_ in accounts with > $250K to be higher than
| the percentage of _accounts_ with > $250K because that's
| how numbers work.
| ericmay wrote:
| Average or median?
| [deleted]
| zamfi wrote:
| No one here actually reading the thread, all assuming
| you're talking about SVB and not (as the parent says)
| _previous_ bank failures.
|
| To address your actual point: we don't know whether WaMu
| depositors had a lot in uninsured accounts, probably not as
| much as SVB, but we do know that all depositors were made
| whole when JP Morgan Chase bought the bank -- from assets
| WaMu already had, not the FDIC's pool. Even senior
| creditors received some amount back!
| lkschubert8 wrote:
| I can't seem to find it now, but either here or on reddit
| someone had numbers from a filling indicating ~8% of
| accounts were below 250k.
| [deleted]
| Waterluvian wrote:
| The law is clear on the priority of claims. You can get a
| quick overview at the bottom of this page:
| https://www.fdic.gov/resources/resolutions/bank-
| failures/fai...
|
| It makes sense that they'll make depositors whole before even
| thinking about the rest. From the top of that page:
|
| " All depositors will have full access to their insured
| deposits no later than Monday morning, March 13, 2023. The
| FDIC will pay uninsured depositors an advance dividend within
| the next week. Uninsured depositors will receive a
| receivership certificate for the remaining amount of their
| uninsured funds. As the FDIC sells the assets of Silicon
| Valley Bank, future dividend payments may be made to
| uninsured depositors."
| booleandilemma wrote:
| _More than 85% of Silicon Valley 's Bank's Deposits Were
| Not Insured._
|
| https://time.com/6262009/silicon-valley-bank-deposit-
| insuran...
| Waterluvian wrote:
| Insured means they're guaranteed to get it back. But the
| uninsured deposits are at the very front of the line for
| all further fundraising efforts.
| kelnos wrote:
| So? That doesn't change anything.
| kasey_junk wrote:
| Yes? Most famously when IndyMac failed they retroactively
| raised the insurance limits.
|
| It's almost certainly not going to come to that in this case
| as the normal fdic playbook will work but the federal
| government has a history of taking action when extraordinary
| bank failures happen.
| [deleted]
| SirensOfTitan wrote:
| I'm inclined to agree, this kind of special treatment is
| fairly ridiculous, depositors in other bank failures with
| funds over FDIC limits have to wait for fire sales to
| recover, which can take years in some cases.
|
| I'm not sure exactly what Yellen is proposing (I only
| subscribe to print FT so no access), but it seems like
| special treatment for the well connected on Sandhill Road.
| auntienomen wrote:
| It's not particularly unusual. The FDIC has generally
| arranged things via sales and capital injections so that
| the bank owners get ruined while the depositors, insured
| and otherwise, get just about every back. If they did
| otherwise, no one would bank at local banks.
|
| What is unusual is the Treasury secretary making public
| comment about it. But this is a unusually large bank
| failure and a rather critical moment.
| [deleted]
| Mistletoe wrote:
| The response to this crisis has been very telling. No one I
| meet wants Big Tech to be saved or has any good response
| when asked about Silicon Valley. The response is one we
| would expect for a group of people that have enslaved us
| rather than liberated us. Made us miserable rather than
| delighted.
|
| I see two waves in Silicon Valley. Wave one was actual
| innovation, computers etc. Wave two was rent-seeking conmen
| fueled by zero interest rates and privacy thieves.
| omginternets wrote:
| This has nothing to do with Big Tech. This is about SMBs.
| drstewart wrote:
| >But the government should not relieve anyone past what is
| legally available.
|
| The FDIC amount is a minimum, not a maximum.
|
| But I agree, college loans should not be forgiven past what
| is legally available ($0).
| roseway4 wrote:
| Yes, in the case of large retail banks, the government did
| help. In 2008, the federal government purchased stock in
| several banks in order to recapitalize them. One could argue
| this was a starker example of moral hazard than letting the
| bank fail, but making depositors whole.
| MomoXenosaga wrote:
| Which is why you should always bank at a "too big to fail"
| institution.
|
| Why America has 4000 banks is beyond me. In my country they
| all consolidated in the 60s and 70s into a half a dozen
| giants.
| teawrecks wrote:
| Wait so, you're in favor of the bank being bailed out
| here?
|
| The phrase "too big to fail" doesn't mean it's impossible
| for it to fail; that's not a thing. It means the
| govt/public feeling obligated to bail it out when it does
| fail because the public thinks they're so dependent on it
| that they're worse off of they let it fail.
| azinman2 wrote:
| This is a very strange take. You're arguing for the
| consolidation of wealth into a few giants? These giants
| then in turn will own a significant portion of the
| economy, will be subject to far less competition, will
| stagnant any given area based on what they're willing to
| invest in or what they're not (as a service and in the
| economy), make them extremely capable of owning
| politicians and setting the directions of the country,
| and enable few to gain the experience and opportunity
| that comes with going up the banking ladder because few
| seats exist.
|
| Local community banks make it far easier for farmers and
| coffee shops to get loans. Local community banks keep
| money locally and grow locally. The consolidation of
| banks is a problem to avoid, not desire.
| anamexis wrote:
| That's all well and good until a "too big to fail"
| institution fails.
| kelnos wrote:
| The government, as we saw in 2008, won't allow those
| banks to fail. That's literally what "too big to fail"
| means. If the government doesn't have the ability to keep
| such banks afloat, then we have worse problems.
| teawrecks wrote:
| Right, which is literally the argument against a small
| set of giant "too big to fail" banks.
| altairprime wrote:
| By 'afloat', do you mean, "keep the depositors whole" or
| "keep the bank operating" or both?
|
| A lot of confusion centers around the assumption that any
| bailout will be for the bank's operations, not for the
| depositor's deposits. That's perfectly valid confusion -
| historically it's been the latter! - and the FDIC isn't
| willing to talk about deposits yet, either.
| mark_l_watson wrote:
| I don't agree. I diversify by using two small local
| Credit Unions. I also use a large bank for specific
| services.
|
| Local Credit Unions and small local banks rock.
| atdrummond wrote:
| Banks are too big to fail - until they aren't.
| joecasson wrote:
| I don't agree. There are many instances where using a
| boutique or smaller institution is better for your
| business to run.
|
| My company used to bank with Bank of America. It was
| awful. They seemed to have no concept of how to work with
| small business or a tech startup. We moved to another
| bank (not svb) and it's been a much better experience.
|
| Only leveraging the giants of a given industry is not
| good for innovation nor specialization.
| dannyw wrote:
| Until your money gets locked up and/or you face a
| haircut...
| joecasson wrote:
| Yes, there is safety in size. But operational
| capabilities of companies using the big banks would be
| cut as well.
|
| To draw an analogy, should every business owner with
| physical goods only sell and distribute their goods
| through Amazon and/or Walmart? Yes, their size provides
| many benefits, but also has dramatic costs to their
| business and impacts how customers are served.
| johnny_canuck wrote:
| It does seem as though larger banks can only work with
| entities that fit inside their self-described personas.
| If you do not align exactly with one of their personas -
| good luck.
|
| At least that is what I have seen here in Canada, I
| imagine the US is very similar in that regard.
| nabla9 wrote:
| Because there was a systemic risks.
|
| You let one bank collapse, OK. If the collapse causes other
| banks to collapse then it's bad. When WalMart, Costco can't
| transfer money to fill shelves, people go hungry. When people
| can't get their wages, they go hungry.
| wheelerof4te wrote:
| Then, at least be fair and nationalize the big banks.
|
| There's no point pretending that the large banks are
| "private" if they are subjected to some special rules.
|
| People put their money there willingly, no one forced them
| to. Let them all feel the joys of "free market capitalism".
| criddell wrote:
| No need to nationalize them. AFAIK, Canada has had two
| bank failures over the past 100 years. Regulation can
| work.
| Ekaros wrote:
| Or we could just go with CBDC give everyone government
| paid 0-interest account at central bank. With zero risk
| to lose the money. As it could truly be cash equivalent
| while being there.
|
| Then if people want more they could get account somewhere
| else, but fully carry the risks from that.
| nabla9 wrote:
| People and businesses still need loans.
|
| When my business gets a new order, and needs $200,000
| loan we don't have to buy the raw material, we need short
| loan of 1-2 months from the bank. The bank uses your
| deposits to make that loan.
| wheelerof4te wrote:
| The bank uses _a portion of everyone 's_ deposit to make
| the loan. The rest is made out of thin air.
|
| FIAT currency is proped up by private bussiness banks.
| Only a tiny fraction of the money supply is the M1, or
| base money (printed by FED).
| Armisael16 wrote:
| All of the money the bank gives out comes from deposits
| or shareholder capital. The bank isn't the mint; it isn't
| allowed to print money.
|
| The way that banks expand the money supply is by
| providing the illusion that all my money is there and
| available while at the same time being loaned out to
| someone else.
|
| Fractional reserve banking means that banks don't have
| all their deposits in hand. It does not mean that they
| invent cash for loans.
|
| (The distinction here is less obvious in a digital world,
| but it's quite clear if you think about how it would work
| if physical cash was used)
| Ekaros wrote:
| So the people could instead give their money to a bank
| which then would offer various deals. Give money to 1
| year and receive certain rate on it.
|
| Point is that no one should be forced to take on risk if
| they are using a bank. Instead it should work like any
| other investment.
| colinmorelli wrote:
| Isn't this just exactly what the FDIC is? The vast
| majority of people do not have more than $250k in
| deposits sitting in cash. More than that sitting around
| in cash wouldn't be a prudent financial decision anyway,
| since putting that capital to work (even in very safe
| investments), would yield a better return.
|
| Those that are below $250k are taking effectively zero
| risk. The worst case scenario is possibly losing access
| to funds for one business day before the FDIC returns
| deposits up to the coverage limit.
|
| This is, of course, without playing games using sweep
| accounts or other instruments.
| rashkov wrote:
| How many businesses have less than 250k though? I'm
| surprised that the insured limit isn't higher for
| businesses. Depositing your money in a bank doesn't feel
| like it should be a risk/reward decision, like investing
| in the stock market
| colinmorelli wrote:
| This speaks to my latter comment. You can use sweep
| accounts to increase protection, money market accounts
| which have different risk profiles, T-bills backed by the
| USG, etc.
|
| That said, it's all a tradeoff. Increasing FDIC insurance
| coverage means decreasing the yield on savings accounts,
| since banks fund FDIC and wouldn't take a cut in profits
| for it. Not sure what the optimal outcome here really is.
| nabla9 wrote:
| > nationalize the big banks.
|
| That would be a good idea. If bank is too big to FDIC to
| absorb and "too big to fail" and it fails it becomes
| Treasury owned overnight.
|
| For example Paul Krugman agrees.
| https://www.nytimes.com/2009/02/23/opinion/23krugman.html
|
| >What Alan Greenspan, the former Federal Reserve
| chairman, and a staunch defender of free markets,
| actually said was, "It may be necessary to temporarily
| nationalize some banks in order to facilitate a swift and
| orderly restructuring." I agree.
|
| >The case for nationalization rests on three
| observations.
|
| >First, some major banks are dangerously close to the
| edge in fact, they would have failed already if
| investors didn't expect the government to rescue them if
| necessary.
|
| >Second, banks must be rescued. The collapse of Lehman
| Brothers almost destroyed the world financial system, and
| we can't risk letting much bigger institutions like
| Citigroup or Bank of America implode.
|
| >Third, while banks must be rescued, the U.S. government
| can't afford, fiscally or politically, to bestow huge
| gifts on bank shareholders.
|
| ... >Still, isn't nationalization un-American? No, it's
| as American as apple pie.
| NotACop182 wrote:
| Then the laws need to change and a solution for the future
| must be made. We can't keep bending the rules when the laws
| don't work out for this one entity but when the little guy
| is in the same position he's on his own. We need a system
| that's fair across the board. Increase fdic insurance add
| optional insurance options. Call it a day.
| specialist wrote:
| Alternately, recognize that Capitalism is chaotic and
| prone to collapse. Then require risk management be
| updated accordingly _AND_ use something like Socialism
| for when that chaos and risk are unacceptable.
|
| And then don't mix the two.
|
| Basically the (idealized) Democratic Socialism of the
| Nordic governments.
|
| Food for thought:
|
| David Graeber in Debt: The First 5,000 Years asks if
| Capitalism might be intrinsically unmanageable, so
| therefore prone to collapse. He notes that every economy
| in history experienced a debt crisis, requiring
| intervention (eg revaluing currency, revolution).
|
| More recently, Katarina Pistor wrote The Code of Capital,
| which documents the modern economy built on top of our
| shared legal fiction of property. Here's a pretty good
| interview. https://the-ezra-klein-
| show.simplecast.com/episodes/katharin...
|
| FYI, I'm not an economist, so I'm not aware of anyone
| making the specific case that Capitalism is chaotic and
| so therefore will eventually collapse (aka chaos theory).
| komali2 wrote:
| This seems to be a core argument for those in opposition to
| shareholders getting liquidated bank assets vs depositors,
| but I don't really understand it because it seems to be kind
| of arbitrary. So there's fdic insurance, that's nice, but why
| does that mean anything regarding whether depositors or
| investors should be made whole first? The more important and
| real question is which option has what outcomes in terms of
| future investor behavior, or future depositor behavior?
|
| If it's a question of rigid legality that also doesn't make
| sense to me, because from what I remember from 2008 was the
| government's legal options were incredibly widespread.
| hyperpape wrote:
| FDIC insurance covers protecting depositors if a bank
| fails. I don't see how you could interpret that as allowing
| anyone to give money to investors.
| stephen_g wrote:
| Shareholders are paid last by law. So if depositors are not
| made completely whole, shareholders don't get _anything_.
|
| 1.
| https://www.fdic.gov/consumers/banking/facts/priority.html
| [deleted]
| PheonixPharts wrote:
| > to make them whole.
|
| The quote in the rather short article is:
|
| > "But we are concerned about depositors, and we're focused on
| trying to meet their needs."
|
| I don't think "trying to meet their needs" is the same as
| ensuring they will "be made whole".
|
| The biggest issues around people with uninsured accounts (the
| vast majority) is both _how much_ and _how long_. This will be
| a mess if either the amount is significantly less than "whole"
| or if the time to be made whole takes months not days.
| mytailorisrich wrote:
| It may make sense to prevent many companies from going under
| but for the long term good of Silicon Valley it should sting.
|
| If all depositors are made whole at no cost to them then there
| is no incentive to avoid a repeat.
|
| Remember that those depositors are not random members in the
| public, their are insiders of the SV microcosm.
| empathy_m wrote:
| I think a 100% depositor recovery rate seems very likely here.
|
| Interesting to think about future rules -- would they limit the
| 100% guarantee to banks who pass the >$250B protections thst SVB
| lobbied to remove for $50B-$250B banks?
| smcnc wrote:
| I'm personally fine with US gov backstopping depositors (but
| leaving equity unbacked) for the specific case of SVB, but the
| ultimate question remains: if the US government insures unsecured
| deposits over $250k (even if no practical risk with long term
| assets on balance sheet as collateral), doesn't this in effect
| create a precedent of no upper limit to FDIC insurance moving
| forward? So now taxpayers are on the hook for all bank deposits
| (thus, creating potential for more reckless behavior by regional
| bank CEO/CFO/CIOs). Isn't that somewhat dangerous?
| tqi wrote:
| If depositors take a haircut, what incentives could smaller banks
| offer in order to remain competitive with GSIBs for business
| deposits? Higher rates seem like it would just increase risk.
| mark_l_watson wrote:
| Smaller local banks and Credit Unions are great! Just don't
| keep more than $250K in any one of them.
|
| The governance of Credit Unions tends to be very transparent,
| at least for the two that my family uses.
|
| Seriously, you are promoting giving business to the major Wall
| Street banks? I would argue this is against your personal long
| term interests.
| tqi wrote:
| Agree that for individuals they are great! But for companies
| with more than 250k in cash, I would think that the
| incentives to keep your treasury "safe" would drive you
| toward banks that you believe are too big to fail?
| mark_l_watson wrote:
| true enough!
| Fede_V wrote:
| I absolutely think that depositors should be made whole - and -
| they will.
|
| At the same time, I think a lot of the VCs who systematically
| talked shit about government regulations while trying to shill
| crypto as a solution should very publicly eat crow. I won't lie:
| it will give me a great deal of personal satisfaction, but, it
| will also make any "bailout" (or, whatever you want to call it )
| a much easier lift politically.
| harles wrote:
| > "Let me be clear that during the financial crisis, there were
| investors and owners of systemic large banks that were bailed out
| . . . and the reforms that have been put in place means we are
| not going to do that again," Yellen said.
|
| The headline is misleading and much of the discussion I'm seeing
| is based on that. Looking at the quote, there's no mention of
| whether or not depositors will be bailed out.
| hermannj314 wrote:
| 1. Executives of SVB receiving bonuses.
|
| 2. Depositors that withdrew their money 100%.
|
| 3. Depositors that will fall under FDIC and made whole by this.
|
| 4. Depositors that will receive X% of deposits (likely under
| 100%)
|
| 5. Debt and equity with SVB
|
| 6. American taxpayer.
|
| OK, I think every possible permutation of who owes who money has
| been explained in this thread.
|
| I personally would like to see a legal mechanism where group 2
| owes group 4 money. Not sure how that would work, but it would
| definitely give no one an incentive to run on a bank ever again
| if we could figure it out.
| initplus wrote:
| The way to prevent bank runs is to prevent banks from becoming
| insolvent in the first place. Making it illegal to take funds
| out of an insolvent bank is not the answer.
| hermannj314 wrote:
| I think you can do both.
|
| However, when/if a bank becomes insolvent, it seems archaic
| that one depositor should get 100 cents on the dollar and
| another 80 on the dollar instead of each 90 (assuming equal
| accounts, etc.) Your place in line shouldn't really matter,
| these aren't Taylor Swift tickets.
| Overtonwindow wrote:
| Silicon Valley is so connected politically, and many in the
| government are so dependent upon silicon valley campaign money,
| that I will be surprised if SOME kind of bailout does not happen.
| The people can rant about it all they want, but at the end of the
| day a politicians first job is survival, and bailing out the
| money folks is about survival. The rest of the country be damned.
| roland35 wrote:
| Whether or not depositors get their money back, or even have
| access to it in a timely manner, I think one lesson for me is how
| important it is to have a contingency plan for banking.
|
| It doesn't cost much to have a few month's (or even just a few
| weeks) worth of money at a second backup bank, but it could be a
| lifeline in the case of your primary bank going belly up.
| deepsquirrelnet wrote:
| Even as an individual with not a lot of money, I think this is
| prudent. When you give your money to a bank, they effectively
| give you back an IOU.
|
| And while most of the time they can make good on it, sometimes
| the investments they make with your money are risky, short
| sighted, or just unlucky.
|
| In any case, don't put yourself into jeopardy by not having
| other options.
| roland35 wrote:
| Exactly! My personal finances are nowhere near as
| sophisticated as even a small start-up, but I make sure I
| have multiple sources of cash and credit just in case I lose
| access to one for whatever reason temporary or permanent
| (bank failure, fraud, forget password, etc).
|
| It isn't too difficult: open up a second savings account,
| apply for an extra credit card, open a HELOC if available. I
| have to believe there is some similar basic things a business
| can do to be more resilient. Even waiting for guarantees
| insured FDIC funds can be a problem depending how long it
| takes.
|
| PS: not trying to victim blame for companies who trusted SVB.
| This is just a rough reminder to be prepared for
| contingencies.
| manquer wrote:
| It isn't too difficult for you as individual to open an
| account anywhere .
|
| Startups don't have that luxury it was and still pretty
| difficult to do banking as an early stage startup . There
| is a reason why there are only 2-3 banks specialized in
| this sector and everyone banked with them.
|
| If you were a small startup keeping your money in SVB was
| the safest thing you could have done till last week. They
| were the largest by far and all your VCs recommended them
| and probably introduced you to them so you could open an
| account .
| roland35 wrote:
| I have a hard time believing a business can't simply open
| a second checking account somewhere, assuming they have
| the cash and don't need any extra features. Maybe if it
| was a very early company. VCs and advisors failed their
| companies if this was their only advice.
|
| Also "safest thing since last week" isn't super
| convincing! Maybe I'm just more conservative since I used
| to bank with Wachovia which failed in 2008.
|
| As an engineer I am expected to have a disaster recovery
| plan. Sure it's unlikely that AWS goes out of business,
| but what if we lose access? Lose data? Ransomware?
| Businesses need to have some basic planning around this
| kind of stuff or else they run this type of risk
| unfortunately.
|
| Again I hope they get all their deposits back. But they
| should hopefully be able to stay in business for a short
| time until the dust settles.
| [deleted]
| alecco wrote:
| Yellen was the 11th President of the Federal Reserve Bank of San
| Francisco [1]
|
| Current president is her protege [2]
|
| Greg Becker (SVB CEO & president) was in SF Fed board of
| directors [3]
|
| "It's a big club, and you ain't in it."
|
| [1] https://en.wikipedia.org/wiki/Janet_Yellen
|
| [1] https://en.wikipedia.org/wiki/Mary_C._Daly
|
| [2] https://www.reuters.com/markets/us/ceo-failed-silicon-
| valley...
| StopHammoTime wrote:
| This is a simple liquidity problem. SVB had the treasury bills
| and loan book to cover all the deposits. They just couldn't
| access any of that money.
|
| The FDIC should take on the bills and loans, and pay out the cash
| now. They will collect the entire balance eventually and they
| have the benefit of time and I imagine they're authorised to hold
| assets like this long-term (or do a cash swap with the fed, they
| have plenty of long term bonds what's another $100B). I have
| always assumed this is what the whole point of the FDIC and
| similar schemes in other countries. They foot the bill
| immediately and then spend time fixing up the mess but eventually
| reclaim it all back. It's a bit like if you're not at fault for
| an accident - the insurer pays you out now and then they deal
| with the at-fault driver and you're not involved in that process
| afterwards in most cases.
|
| According to the press release, SVB had $206B in assets and $176B
| in deposits. The math is simple: everyone should get their money
| back. There may even be some money left over for investors.
| shawabawa3 wrote:
| You need to look up time value of money
| https://en.m.wikipedia.org/wiki/Time_value_of_money
|
| Having $1M in 10 years is the same as having $680k today, as
| you could buy 10Y treasuries that will pay out $1M
|
| So saying "The FDIC should take on the bills and loans, and pay
| out the cash now. They will collect the entire balance
| eventually" is the same as saying "They have lost 30% of
| depositors money but FDIC should pay that 30% out of their own
| pocket"
| loeg wrote:
| > According to the press release, SVB had $206B in assets and
| $176B in deposits.
|
| Those numbers are from December 2022. They had $161B in
| deposits prior to Thursday's $42B in withdrawals. And that
| $206B figure is somewhat fictional hold-to-maturity accounting.
| The $80B in 1.5% bonds aren't actually worth $80B at market
| prices.
|
| They were shut down for being insolvent on Thursday ($950M in
| the hole). It's not just a liquidity problem.
| berkle4455 wrote:
| $206B in assets that were being recognized for their original,
| not current, valuation. That's the entire problem. HTM vs AFS.
| smrtinsert wrote:
| These SVB threads really highlight how uninformed the SVB
| readership is lately. If you don't understand tech and finance
| why are you here?
| popcalc wrote:
| Because they heard about HN from 4chan's /g/ board. You can
| spot the language they use from a mile away.
| mardifoufs wrote:
| Most of the uninformed takes are from older accounts, and use
| talking points straight out of Twitter... and I don't think
| /g/ is particularly interested by VC startup banks lol.
| [deleted]
| yeahsure22 wrote:
| SVB readership? Are you still drunk or something?
| nntwozz wrote:
| I like it, let capitalism work as intended by culling out the
| weak. They should have done the same with GM and Chrysler instead
| of bailing them out, we'd have a faster transition to electric
| today.
| gonzo41 wrote:
| There's strategic reasons to have those companies beyond they
| employ a stack of people. The US sees the big auto makers
| through they eyes of a country that needed at one point to
| start manufacturing around 100,000 bombers to fight in a war.
|
| Government sees industry with a different lens to the markets.
| randmeerkat wrote:
| > The US sees the big auto makers through they eyes of a
| country that needed at one point to start manufacturing
| around 100,000 bombers to fight in a war.
|
| The same companies that said they couldn't make ventilators
| at scale when asked to? Bailing those companies out based on
| an old reference to WW2 was just good marketing, not some
| deep insight only the government is capable of.
| belter wrote:
| Who do you think helped Tesla survive?
|
| "Taxpayer Subsidies Helped Tesla Motors, So Why Does Elon Musk
| Slam Them?" -
| https://www.motherjones.com/politics/2013/10/tesla-motors-fr...
| fwlr wrote:
| Eh, the depositors aren't totally blameless here. On Thursday
| they conspired to perform a huge bank run on SVB, on Friday they
| succeeded, and on Saturday they were demanding the government and
| taxpayers make them whole by Monday. They deserve to get their
| money back and they eventually will once SVB's assets are
| liquidated. But that's not good enough, they want it _now_ , and
| they won't hesitate to make you pay for the expedience. I don't
| like that.
| chewbacha wrote:
| Bank runs aren't a conspiracy they are emergent behavior. They
| are the reason FDIC insurance exists in the first place.
| obventio56 wrote:
| I don't think it's fair to blame the SVB depositors for the
| bank run. Perhaps you can blame public figures (VCs etc) who
| catalyzed it. Once a run starts, though, it's in your interest
| to run too.
|
| If you had >250k in SVB and you managed to get it out before it
| was shut down, you'd be pretty happy with yourself right now.
| If you run a business and have an obligation to share-holders,
| it would be negligent not to try this at least.
| fwlr wrote:
| Yeah, I can't blame them at all for joining an ongoing bank
| run.
|
| I can kinda blame them for starting one because they did it
| so aggressively, but only a bit, because that's just how
| internet banking works these days.
|
| I can definitely blame them for demanding the taxpayers make
| them whole by 9am next business day.
| jzb wrote:
| Who's demanding? Pleading might be more appropriate for
| many businesses.
| fwlr wrote:
| Hey, good news btw. Great, actually. FDIC just announced
| all depositors to be made whole on Monday morning - and
| at no cost to the taxpayers either! The lag between the
| immediate payout to depositors and the eventual recovery
| of value from SVB's remains seems like it will be covered
| by the Deposit Insurance Fund, i.e. the cost will be
| spread out to all banks.
| randerson wrote:
| The depositors aren't a monolith. The ones you want to blame
| aren't the ones whose money went missing.
| n0us wrote:
| This has to be the stupidest take in the entire comment chain.
| closeparen wrote:
| Many commenters have argued that it is the personal
| responsibility of depositors to be on top of the health of any
| institution where they have more than $250k. An obvious
| consequence of that is that it's their duty to cause the
| largest possible bank run at the earliest possible moment.
| LatteLazy wrote:
| Of course, the ones who ran the bank got their money. The ones
| who didn't are now going to be punished for NOT panicking...
| [deleted]
| daniel-thompson wrote:
| > they conspired to perform a huge bank run
|
| Individual depositors don't need to conspire to reach the
| conclusion that in a bank run scenario, it is virtually always
| in each depositor's own best interest to withdraw their money.
| fwlr wrote:
| With the "conspiring", I am referring to reports of VCs mass-
| emailing their investees to move everything out of SVB right
| now.
| lambo4bkfast wrote:
| The VC's obligation is to their startups... Its a
| completely rational decision to get your money out of SVB
| once you know others are thinking the exact same.
| Vt71fcAqt7 wrote:
| So rational decisions get bailouts now? Can I bill the
| government for doing some problems in math workbook? What
| point are you making here exactly?
| lambo4bkfast wrote:
| The government's responsibility is to ensure the
| integrity of our financial banks. It isn't the
| responsibility of the depositor, nor are they capable, to
| evaluate a regional bank's (the 18th largest bank in the
| USA) balance sheet. The FDIC is not without blame; there
| should be regulation that the bank's bonds should have
| been marked to the market.
|
| This is akin to blaming a patient for medical malpractice
| -- "why didn't the patient choose a better doctor".
| Vt71fcAqt7 wrote:
| >The government's responsibility is to ensure the
| integrity of our financial banks
|
| Correct. Thats why they shut SVB down. It is _not_ the
| government 's responsibility to ensure the deposits of
| every individual depositor.
|
| >This is akin to blaming
|
| There is no blame. The depostors money is lost*. That is
| a fact, an event that already occurred.
|
| >why didn't the patient choose a better doctor
|
| Just like with a hospital, they can sue SVB (well, not
| anymore). Some things just aren't fair. But "thing not
| being fair" does not mean "and now the government shall
| make it fair."
|
| The law has always been $250K (or some other limit) since
| the FDIC was created, hundreds (thousands?) of banks have
| failed since, and sometimes the depositors were burned.
| Somehow VCs think they are special because they are
| "disruptive" or whatever but they are not. The other
| times depositors were burned it wasn't because it was
| their "fault" or not, that isn't part of the
| consideration.
|
| *or some amount of it.
| fwlr wrote:
| I'm not trying to sentence them to the guillotine or
| anything. I appreciate the strong incentives driving
| their actions. Even the desire for the government to
| retroactively insure their deposits is understandable,
| although I disagree. In the OP I said they're not
| completely blameless; I should emphasize I also think
| they're not completely to blame. (Except for the shrill,
| nigh-hysterical tone of their demand, and the
| extraordinary timeline they demanded. That one's all on
| them.)
| lambo4bkfast wrote:
| They are blameless is my point. The depositor has zero
| responsibility to evaluate the bank's balance sheet. Not
| ensuring the depositors are made whole will risk a run on
| all regional banks throughout the country starting
| tomorrow morning. We will then see a consolidation of
| deposits into the top 4, too big to fail banks; hardly a
| progressive outcome.
| fwlr wrote:
| I understand your perspective, but I also want to impress
| on you that the way you stated it is going to hurt your
| chances of being heard with a lot of people.
|
| The outside view on this situation is: shit happens to
| blameless people all the time and they mostly just have
| to cope, no matter how validly they insist on zero
| responsibility. The depositors _are_ going to be made
| whole - starting with a lump sum Monday morning, some
| decent percentage by the end of the week, and almost all
| within a month. That's what's going to happen. "Make the
| depositors whole on Monday morning or the whole banking
| system goes under" is profoundly off-putting. It's not
| because the outside view wants you to lose all your
| money, it's because it looks like "getting a little back
| now, enough back soon, and most back eventually" isn't
| enough, you want to get it _all_ back _now_. The outside
| view does not buy your claim of contagion because SVB
| looks like a weird and insular bank for a weird and
| insular group of buddy-companies, so it feels like you're
| cynically doom-mongering to get what you want, and they
| already think what you want is too much (and especially
| too quick).
|
| I'm not espousing these views, I'm trying to see all
| sides and get all sides seen. That's how outsiders will
| see it, and they'll probably be less polite about letting
| you know too.
| tlonny wrote:
| Depositors aren't a monolith. In fact, the depositors that
| _didnt_ "conspire to perform a huge bank run" are the only
| depositors which would require government assistance to make
| them whole.
| jzb wrote:
| Some of the depositors, not all. My employer didn't conspire
| about anything.
|
| When and how much money is returned is going to make the
| difference between life and death for some of these companies.
| And the difference between having a job and healthcare or not
| for a lot of people.
|
| Don't forget that this is happening to depositors / companies
| after weathering a pandemic and in a really shitty economies
| where things are already very challenging. Having additional
| cash flow problems and/or additional debt to service all the
| sudden may be the proverbial straw that sends companies and
| people into bankruptcy.
| lisasays wrote:
| _My employer didn't conspire about anything._
|
| They didn't "conspire", per se. But they failed to do due
| diligence on the nature of the financial institution they
| were relying upon.
|
| Or even to think, for a minute, about fussy terminology like
| "FDIC insured" actually means.
| fwlr wrote:
| I'm sympathetic. I was in the hospitality industry during
| COVID, I watched a company that employs 60 people struggle to
| make payroll while 90% of their business was legally barred
| from operating for months on end with no clue when it would
| end. I saw managers and fellow employees giving each other
| loans, I paid for a coworker's car repairs. I am not wishing
| this on you.
|
| By this evening you'll know if a sale has gone through; if
| so, everything is back to normal. Otherwise, the FDIC has
| 250k waiting for your employer on Monday morning, guaranteed.
| Even if that's not a week's payroll, for all but the largest
| companies that's enough to get employees by for a week.
|
| The money isn't gone, just locked up in securities. By the
| end of the week some percentage of the account will be
| released - I've heard predictions of 80%, 60%, 50%, but even
| if it's 20% that is still enough for almost any place to run
| close to full payroll and operating costs for a month. By the
| end of the month you'll have 50-80% back, and you're back to
| normality. Maybe the last 20% takes a year. It can wait. This
| isn't the end! It's scary, but it is not the end.
| HoyaSaxa wrote:
| The good news is that even in a worst case scenario of a fire
| sale, we are talking about a small percentage of uninsured
| deposits at risk (likely around 5% depending on how many deposits
| were successfully pulled over the last couple of weeks).
|
| However, a fire sale is definitely not needed for all assets, and
| it seems likely given Yellen's comments that the government will
| provide some short term liquidity so that the fire sale of
| illiquid assets is not necessary (e.g. portions of their loan
| portfolio; their $7bn municipal bond portfolio; their $3.5bn of
| unmarketable securities (largely affordable housing projects...).
|
| Honestly, in many ways the regulation worked. What our regulation
| didn't account for is that bank runs at the non-top 4 banks have
| become more likely in a interconnected world with "too big to
| fail" alternatives.
|
| The $120bn FDIC Insurance Fund (self-funded by the banks and not
| the government) will definitively not even take a penny loss from
| this failure. That to me is the actual problem.
|
| We are not protecting enough of the banking system with
| insurance. Should it be 100% of all deposits, probably not.
| Should it be up to $1mm or even $10mm per depositor, probably!
| Why should someone who sold their $750k family home yesterday be
| out any money just because they decided to deposit the money at
| their non systematically important bank? Or why should a non-
| profit that just completed their annual fundraising push for $1mm
| be out some of that money?
|
| SVB "Fire Sale" Scenario Napkin Math
|
| Note: Uses 12/31 numbers, but that should be largely
| inconsequential for determining the net liquidated cash value of
| a fire sale
|
| $209bn assets
|
| - $15.5bn HTM MTM + Slippage
|
| - $7.5bn Loan Impairment + Slippage
|
| - $2bn AFS Impairment + Slippage
|
| - $1.5bn Non-Marketable Securities Impairment + Slippage
|
| - $0.5bn Goodwill + Intangibles
|
| - $0.5bn Property, Equipment, Lease & Other Asset Write Downs
|
| - $0.5bn Wind Down Administration
|
| $181bn Liquidated Cash
|
| - $15bn FHLB "Super Lien"
|
| $166bn Liquidated Cash Available to Depositors
|
| - $7.6 Insured Domestic Deposits
|
| - $151.5 Uninsured Domestic Deposits
|
| - $13.9bn Foreign Deposits
|
| $7.5bn Liquidated Cash Shortfall
| epvgwwqe wrote:
| Positions that claim depositors in SVB should not be made whole
| must be missing a whole lot of context.
|
| There is a sequence of screwups here by the government and then
| by SVB which led to this, and it makes zero sense to have that
| impact depositors who manage the critical innovation
| infrastructure of the US.
|
| The backdrop that led to this includes the government printing
| way too much money, which induced a ridiculous bull run and
| coupled with supply chocks caused high inflation. The Fed failed
| to react quickly enough partly for political reasons, eventually
| leading to a jarring about-face with the sharpest interest rate
| increases in decades.
|
| Meanwhile the bull run led to an increase in deposits to SVB,
| which SVB needed to put to work and bought an outsized low yield
| 10 year bond which plummeted in value once interest rates spiked.
| This was indeed a poor decision by SVB and along with the drop in
| new deposits from the interest rate-induced VC slowdown pretty
| much sealed their fate.
|
| Once SVB share price dropped 50%, depositors acted rationally to
| pull their uninsured funds. It wouldn't have mattered whether VCs
| chimed in or not, the bank run would happen regardless in a
| matter of days (there were plenty of red flags that the price
| drop exposed widely).
|
| If experts in finance/banking didn't see this coming, why would
| small business depositors be expected to? If diversifying across
| regional and "too big to fail" banks were such an obvious issue
| it would have been baked into every VC funding agreement, but it
| wasn't (but I'm sure it will be from hereon).
|
| Which startups/VCs bank with SVB is basically an arbitrary choice
| (in fact the standard one), so what would be the point of
| punishing large swaths of the critical innovation industry that
| happened to do something considered as the industry standard?
| Making depositors whole is not a bailout, it's a backstop for the
| inevitable crack in the economy that the aggressive/clumsy Fed
| induced.
|
| If this doesn't get resolved immediately, the US can pretty much
| say goodbye to any form of long term dominance, economic,
| military or otherwise.
| brutal_chaos_ wrote:
| People may want to reconsider what a reputation actually is,
| because it seems SVB was not a good bank despite its reputation.
| I'm guessing they marketed to dumb money; people who won't look
| past some marketing and attached names (e.g. Peter Thiel) and
| assume all is good.
|
| In general, I think more due diligence is needed, even with a
| good reputation. (e.g. look into lobbying efforts. if they are
| lobbying for weakened rules, they may be violating/doing
| something illegitimate already a la FTX).
|
| Enron was reputable, for example. Different situation, i know,
| but the point is reputation is great, due diligence is better (i
| don't know what good DD would be in the Enron case, perhaps the
| fact they pushed a 100% buy in would be one of many red flags,
| for example).
|
| I do think workers should be paid, btw. However, the c-level
| team/s that made the choice to bank with SVB aught to lose out
| because it was their bet that tanked the company (or otherwise
| hurt it financially).
|
| Tis are my admittedly outside/naive perspective.
| vishnugupta wrote:
| "Let me be clear that during the financial crisis, there were
| investors and owners of systemic large banks that were bailed out
| . . . and the reforms that have been put in place means we are
| not going to do that again," Yellen said.
|
| "But we are concerned about depositors, and we're focused on
| trying to meet their needs."
| collectedparts wrote:
| The linked FT article is a quick writeup from her CBS interview.
|
| CBS also has a transcript of the interview itself:
| https://www.cbsnews.com/news/janet-yellen-face-the-nation-tr...
| joering2 wrote:
| now there are lines withdrawing from First Republic. Question to
| those who know better... all my "digital" savings are with Bank
| of America and Chase (eight-digits) - these are biggest banks in
| the US. Should I be concerned?
| gnicholas wrote:
| These banks are too big to fail, so I would guess they will be
| net beneficiaries of the current panic. If you have 10x the
| FDIC limit, it's probably good to diversify, but it seems
| highly unlikely the govt would let either bank even come close
| to failing.
| soheil wrote:
| In additional to not getting any new VC money anytime soon
| startups now need to buy a pillow to hide their cash under.
| LatteLazy wrote:
| I have no horse in this race but...
|
| The US has spent the last 15 years printing money to bailout
| mortgage holders. So no one who has had a mortgage or sold a
| house since 2008 can complain about a bailout, since they have
| received one...
| Kephael wrote:
| Funny thing is, part of why SVB blew themselves up was they
| bought a bunch of long term mortgage backed securities paying
| low rates so now those securities have lost a ton of value if
| they were to liquidate them (which the FDIC will be doing
| shortly).
|
| But I don't think the Fed engaging in QE constitutes a bailout.
| LatteLazy wrote:
| It will be interesting to see who else is struggling as I
| doubt svb are the only bank that went long duration to try
| and eek out some yield.
|
| Here in the UK there was a pretty explicit choice to watch
| medium sized (still huge for a mere human like me) banks fail
| but to bail out large ones. I guess that's fine from a short
| term, pragmatic sense. Not sure what it does for long term
| competition but c'est la vie.
|
| I believe bailouts are usually kept secret as telling anyone
| (a) makes banks less likely to ask for one and (b) then
| causes a run pushing up the cost of the bailout. The
| conspiracy theorist in me wonders who has been given a below-
| inflation "loan"...
| rvz wrote:
| Some people just want to see the (tech) world and the VC pyramid
| scheme collapse. This time, Silicon Valley has to help itself
| with this mess it created.
|
| Some startups like Circle with large backers will survive, but
| others on the other hand need more than a miracle or a hero.
|
| I would not want to see the chaos underneath in bookface right
| now and certainly the collapse with in less than 24 hours.
| [deleted]
| jszymborski wrote:
| While I have no love for what has become "big tech", this
| really has nothing to do with their indiscretion or bad
| behaviour.
|
| SVB was a financial institution outside of that sector which
| catered to that class of customer and regrettably took on risks
| that made them exceptionally vulnerable to interest rate
| increases. Add that with their clients mostly having uninsured
| deposits and belonging to one industry, and we're in this mess.
|
| Im not sure how this is evidence of a tech or vc pyramid
| scheme, it's just a regrettable series of choices by a
| financial institution.
| sambull wrote:
| They also lobbied to become more vulnerable. Greg Becker the
| CEO worked to get regulations removed that helped them get in
| this position by removing public liquidity stress test
| reports and reduce the frequency of liquidity stress tests.
| macintux wrote:
| That's fine, punish the bank and change the regulations.
| Depositors had nothing to do with that.
| [deleted]
| Kephael wrote:
| Depositors failed to do their due diligence, the bank
| offered 'sweet heart' deals to get customers. Depositors
| should lose their pants and have to wait for the FDIC to
| liquidate before getting any funds.
|
| No one deserves free, unlimited, zero risk access to
| depositors. If you want to do that, you should buy bonds,
| short eurodollars as hedge, and get loans against the
| bonds. None of this is free.
| marvin wrote:
| This is exactly the statement that's required, given the
| confusion and irresponsible politicization of deposit insurance.
|
| Shareholders lose 100%, depositors get 100% of their deposits
| back. It's a simple situation, and the former point (as opposed
| to the solution during the GFC) counteracts moral hazard.
| bradleyjg wrote:
| What politicization of deposit insurance? The amount of
| deposits that are insured have been capped since the program
| was put in place 90 years ago.
|
| Making all depositors completely whole is not insurance. That
| was not a risk that premiums were paid for. It's a government
| bailout.
| marvin wrote:
| The politicisation should be obvious from the "eat the rich"
| rhetoric currently floating everywhere on Twitter. The
| government is mostly concerned with the stability of the
| economy and preventing cascading bank runs, which this
| climate is less conductive to. That much should be obvious to
| a slightly keen observer.
|
| While it's well and good in theory that deposits are capped
| at $250k, adhering strictly to that rule right now will cause
| cascading consequences much more serious than the price of
| this guarantee.
|
| Sensible realpolitik right now is to guarantee the deposits
| to prevent cascading wealth destruction that will very much
| hit Joe Average, then adapt the system to prevent moral
| hazard and ensure that this insurance premium is collected in
| the future. There will probably be a way to recoup the cost
| of the guarantee from debt holders to SVB, but right now the
| real concern is putting out the burning crisis of confidence.
| npalli wrote:
| I don't think she is saying (as of the article) that depositors
| will get 100% back. They will get help but could be with a
| haircut.
| nightpool wrote:
| There will be a lot of political and financial pressure to
| value their HTM bonds at 100% because otherwise it will
| precipitate more runs on banks and more distrust in the
| financial system. And these are in fact the safest bonds in
| the world--they're going to get paid out, but the problem is
| that in 10 years, money isn't going to be worth as much as
| it's worth today. So banks don't necessarily want to buy them
| at full face value (because there are better things they
| could be buying), but in this situation, they're probably
| going to
| jocro wrote:
| And that haircut won't be fun for many but I think the
| balance sheet had them at around $200 billion in deposits
| with $175 billion in assets. Obviously the question now
| becomes liquidity but I think the sky is not yet falling
| (unless more dominos start to tumble)
| fma wrote:
| If depositors get 100% back (I assume the government pays the
| difference between selling SBV assets & the deposits)...then
| what's the purpose of saying "FDIC Insured up to $250k"? It's a
| moot then isn't it? I don't need to go through the hassle of
| distributing my money anymore?
|
| Edit: I read the article. Yellen says ""But we are concerned
| about depositors, and we're focused on trying to meet their
| needs."
|
| She says NOTHING about depositors getting 100% back. It could
| be that they get the share of deposits back faster.
| kentonv wrote:
| The purpose of the $250k per-person-per-bank limit is to
| encourage large depositors to spread their money among many
| banks, which reduces risk for both them and the system.
| However, it's not clear that this limit is really the ideal
| design.
|
| In the financial crisis 15 years ago, the FDIC in practice
| guaranteed 100% of deposits. They had to in order to keep
| people from running all the banks. Since then, we've all been
| told that banks are safe now because of new regulations. Lots
| of people have become complacent and haven't felt the need to
| manage multiple bank accounts to stay within FDIC limits.
|
| SVB's collapse has _suddenly_ let everyone know that, oh,
| those FDIC limits do actually matter and if you are over them
| in any of your accounts you had better start moving money.
| Unfortunately, that 's likely to result in runs on lots more
| small banks as everyone moves their balance in excess of
| $250k over to JP Morgan (the bank that definitely can't
| fail).
|
| Sure, it's easy to say now that it's all those people's fault
| for not managing their risk properly. But not long ago, a
| $2.5-millionaire opening 10 different bank accounts to stay
| under FDIC limits would have been called paranoid. And in any
| case, stupid or not, allowing runs on lots more banks could
| at some point lead to large-scale collapse of the financial
| system, which would be bad for much more than just those
| large depositors.
|
| So it may be in everyone's interests for the FDIC to once
| again guarantee 100% of deposits. (I say "may", I don't
| pretend to be enough of an expert to decide this!) And maybe
| the $250k limit should be rethought going forward, into some
| other sort of rule that encourages diversification without
| encouraging contagion when a big bank fails?
|
| (Disclosure: I had an account at SVB, but it was under the
| FDIC limit. So I don't have any personal need for a "bail
| out".)
| mlyle wrote:
| > But not long ago, a $2.5-millionaire opening 10 different
| bank accounts to stay under FDIC limits would have been
| called paranoid.
|
| Maybe I'm paranoid. But I have a few accounts. Not enough
| to make everything FDIC insured, but enough to get more
| insurance and mitigate risk.
|
| And my most recent startup used IntraFi's product to get
| diversification and more insurance.
| fma wrote:
| I'm no startup CEO but I do trade stocks. I know many
| brokers, suck as Interactive Brokers will automatically
| move your money for you to different banks and your FDIC
| insurance is essentially $2.5 million while lookimg like
| 1 bank
| (https://www.interactivebrokers.com/en/accounts/sweep-
| program...)
|
| In addition I use a service called Max My Interest where
| it will find me the max interest savings account, but
| also consider risk of bank failure so it's not all in one
| bank.
| thecus wrote:
| So, when you're running a $3mm payroll, how do you do that
| while keeping money in an FDIC insured state.
|
| FDIC needs to be reformed. I feel like it's been 250k for
| my entire life lol, at the very least the amount needs to
| be revisited.
| mlyle wrote:
| If you're running a $3m payroll, odds are you have a lot
| more than $3m in cash.
|
| Sure, smaller transactions in flight will always be at
| risk.
|
| > FDIC needs to be reformed. I feel like it's been 250k
| for my entire life lol, at the very least the amount
| needs to be revisited.
|
| It moved from $100,000 to $250,000 15 years ago.
| azinman2 wrote:
| So where do you keep that more than $3M in cash? Always
| in N/250k banks? This is not a useful solution to running
| a company.
| mlyle wrote:
| You just ask IntraFi to place it for you.
| https://www.intrafi.com/services/deposit-solutions/for-
| regio...
|
| It generally looks transparent and like it's just in your
| chosen bank. (Though if you want laddering, etc, you do
| need to plan).
|
| If you have a lot of cash, you buy T-Bills and other
| instruments with some of it.
|
| And yes, you have some risk remaining, of some of the
| cash disappearing. But with diversification and
| insurance, it is negligible.
| fma wrote:
| I mentioned in another comment, but there are account
| features where your money is deposited to N banks
| automatically. i.e.
|
| https://www.interactivebrokers.com/en/accounts/sweep-
| program...
|
| https://www.cnb.com/business-
| banking/accounts/savings/bank-d...
|
| https://www.wellsfargo.com/investing/cash-sweep/
|
| Of course if those banks are depositing to the same 10
| banks then you're really protected at 10x...but, well
| much better than 250k? I'm going to guess it's called a
| "Sweep Program" but I'm no finance expert. I know of this
| because it's common for brokerage account to do this - as
| very often, you'll have more than $250k in cash if you're
| doing active trading.
| dkjaudyeqooe wrote:
| You don't need the FDIC, lodge your money directly with
| the US government.
|
| Let's say you earn your income 28 days before you have to
| pay out wages (for illustration purposes). You buy a 28
| day Treasury bill which matures in time for you to make
| payroll. Even if they're paid into a bank account you're
| taking a lot less risk having money sit for a day than
| continuously. You also earn a little interest.
| kentonv wrote:
| Yes, the limit seems especially poorly-suited to
| businesses.
|
| Though, there do exist meta-banks that split funds across
| multiple other bank accounts in order to achieve higher
| FDIC limits. Maybe we'll start seeing more of these.
|
| Otherwise, I think the FDIC needs to revise the rules.
| nipponese wrote:
| I think you're beginning to get it.
|
| Consider time it takes to get your deposit back: FDIC says
| depositors will get $250k back on Monday morning (pretty
| incredible turnaround actually). For the rest, they will have
| to wait for assets to be sold.
| Denvercoder9 wrote:
| > For the rest, they will have to wait for assets to be
| sold.
|
| Actually, that's not completely true; FDIC also says that
| they'll pay an advance dividend to uninsured depositors
| next week. That likely won't be the full balance, but
| they'll get at least part of their deposits back before
| assets are sold.
| daniel-thompson wrote:
| > what's the purpose of saying "FDIC Insured up to $250k"
|
| The FDIC guarantees up to $250k, but if additional assets are
| available beyond that, then those will be paid out to
| depositors as well. It's a floor, not a ceiling
| m3kw9 wrote:
| Upto sounds like a ceiling to me
| ntonozzi wrote:
| If you only deposited $1000 they are not going to give
| you $250k back.
| nend wrote:
| Yes, the ceiling of the guarantee. If the bank has
| additional assets to be sold you can still receive more
| of your deposit back, but the government doesn't
| guarantee it.
| agotterer wrote:
| Depositors get deposits back because their deposits are
| wrapped up in SVB assets. Once those assets are liquidated
| they get what is theirs. This could end up being less that
| 100% if the assets end up being sold for less than the total
| deposits.
|
| The FDIC insures that no matter what you are covered for up
| to $250k. Let's say the bank had zero assets then all
| deposits would get their $250k and likely nothing else since
| there's no other assets to sell and distribute. This could
| have been the case if SVB had larger losses or turned out to
| be cooking the books or something. But that's not the case
| here. They have the depositors money, it just happens to be
| in illiquid assets that they could't liquidate fast enough to
| cover the bank run withdrawals.
| obventio56 wrote:
| The 250k is messaging to minimize moral hazard. You want
| banks and depositors invested in minimizing their own risk.
|
| I'd guess hesitancy to immediately declare full guarantee of
| funds is also due to these concerns (although there may be
| other reasons as well). The sweet spot here maximizes the
| appearance of consequences while minimizing actual fallout.
| m3kw9 wrote:
| But now banks know is just a bluff?
| mrobins wrote:
| It's not about the bank it's about the depositors. The
| bank is still going to zero.
|
| It's a valid Q how saving depositors impacts CFO risk
| analysis. Hopefully no matter what the outcome this
| scares everyone into diversification.
| thecus wrote:
| The consequences are the reduction of billions in
| shareholder value, and we shouldn't be dumb about doing
| anything that reduces confidence in US banks. SVB
| shareholders will be down from like 60 bln mkt cap during
| the pandemic to a good fat 0.
| raincom wrote:
| She would have bailed out if there were a counter party risk. In
| this case, shareholders will be wiped out.
| [deleted]
| [deleted]
| muzz wrote:
| "Help depositors" means a taxpayer bailout of uninsured deposits
| softwaredoug wrote:
| There's a theme of NEVER AGAIN comments in these SVB posts.
| Harkening back to 2008 financial crisis.
|
| Doing your best to make depositors whole (maybe not 100%, but as
| much as possible) is not a bailout ala 2008. It's generally not
| very controversial financial policy that prevents a financial
| contagion like 1929.
|
| No 10 person company is going to split their 2.5 mil 10 ways to
| get insurance. And they're not going to have the sophistication
| to manage that. Nor do we want to force small businesses to keep
| cash under mattresses or have to evaluate a banks balance sheet.
|
| If you want to think of a bank account in those terms, then you
| expect a radically different financial system. Which is fine, but
| don't expect such a system to exist in our lifetimes, or during
| the current crisis.
| bradleyjg wrote:
| _It's generally not very controversial financial policy that
| prevents a financial contagion like 1929._
|
| A law was put in place in 1933 with a limit. If it didn't have
| a limit, we wouldn't be having this discussion.
|
| Where were all these billionaires and VCs any time prior to
| this calling for uncapped FDIC insurance? This is special
| pleading.
| softwaredoug wrote:
| It's not about "billionaires" (who don't keep billions of
| cash sitting in one bank) but the company with a few million
| that needs to make payroll and pay vendors.
|
| SVB is in receivership where depositors place very highly.
| Banking policy is not just about insurance. That's just one
| tool.
| bradleyjg wrote:
| Billionaires and VCs are going on Twitter and demanding a
| make whole government bailout. Is this the first time they
| are hearing about how the FDIC works?
|
| I don't think anyone is opposed to the system playing out
| like it's supposed to.
|
| The FDIC pays out $250k on Monday plus pro rata whatever
| cash is on hand. Then it starts selling assets. The
| treasuries and MBSs they can probably sell within days,
| those have very liquid markets. That will allow them to
| make another pro rata distribution. The loan book will take
| longer. But as long as public money isn't used, no one will
| call it bailout.
| baq wrote:
| > No 10 person company is going to split their 2.5 mil 10 ways
| to get insurance.
|
| This is a service banks provide transparently. Not sure how
| much paperwork is required, probably could be optimized to a
| couple of clicks.
| belter wrote:
| https://twitter.com/i/status/1634927984799883265
| walnutclosefarm wrote:
| I think Yellen is signalling the right approach, frankly. First,
| the balance between the bank's assets (its loans and the
| investments it made with depositors money, plus the bank's
| capital) and its liabilities, is such that SVB has enough
| holdings to cover nearly all of its deposits. The banks capital
| (that is its equity, and subordinated debt) should all go toward
| making depositors whole. That's what bank capital is for. The
| question then becomes how much of a hole is left in order to make
| depositors whole? It won't be that big a number, if you assume
| that the vast majority of the deposits will remain as deposits in
| whatever bank the Feds find to purchase the corpse of SVB -
| remember, that SVB failed not because it it had a huge mismatch
| between liabilities and assets, but because its depositors tried
| to withdraw all their money all at once - that is because SVB was
| put in a situation where it had to make good on all its
| liabilities in a 2 day period. It couldn't do that, because its
| assets were tied up in loans to other customers which couldn't be
| instantly recalled, and government bonds which couldn't be sold
| quickly enough without incurring substantial losses, and its own
| capital. It became illiquid overnight. But the actual delta
| between assets and liabilities may well be a few billion dollars,
| if the deposits are not all yanked out. For the Feds to put up
| that money as part of a deal to sell SVBs portfolio intact to
| another bank, makes good sense to me. The right people (investors
| in the bank) take the haircut, the depositors get their money.
| bradleyjg wrote:
| Sure we taxpayers can toss in a few billion. In exchange, VCs
| can give up the carried interest loophole and founders can give
| up 83b elections.
|
| Deal?
| benjaminsky2 wrote:
| Founders aren't the only ones who can make an 83b election.
| Regular employees can do so too if they're allowed early
| exercise.
| bradleyjg wrote:
| And founders aren't the only ones that will benefit from a
| bailout.
| roflyear wrote:
| Accounts are worth money to a bank even with no balance. Likely
| if JPM or someone buys the bank people will continue to use
| those accounts. So yeah someone will fill the hole and their
| stock price will probably go up because of it
| 300bps wrote:
| _First, the balance between the bank 's assets (its loans...)_
|
| Keep in mind those loans are largely being paid by SVB
| customers that are very likely scrambling to make sure they can
| pay their employees right now.
|
| It's pretty assured that more SVB loans will be defaulting in
| the coming weeks than if their depositors didn't lose access to
| about half of their money.
| wanderingmind wrote:
| This, people here are not talking about feedback loops and
| second order effects, most lending customers and depositing
| customers are highly correlated
| paganel wrote:
| > For the Feds to put up that money as part of a deal to sell
| SVBs portfolio intact to another bank, makes good sense to me
|
| Honest question: why? I.e. why can't the capitalists invested
| in this business absorb the reasonable haircut? (I assume it's
| "reasonable" based on the information we have been provided
| with until now). Depositors (especially those holding more than
| 250k) were also investors, they were getting back more money
| than they had put in.
| initplus wrote:
| SVB catered primarily to businesses - the last thing we need
| right now is every business worrying about where their bank
| deposits are. If they do worry, it may trigger more runs as
| they all try to move their funds to "safer" banks.
| paganel wrote:
| And then why shouldn't be the whole banking system be
| nationalized? Businesses are capitalists by detonation
| (especially those based in the Bay), doing business comes
| with risks, managing risk is one of the basis of
| capitalism.
| walnutclosefarm wrote:
| I make a clear distinction between depositors and investors.
| The holders of the bank's capital - it's equity and and
| subordinate bond debt, are at-risk investors, and should, as
| I said in my original post, take a 100% haircut (assuming the
| bank in fact has fewer assets than liabilities.) But a
| depositor - who probably was earning negligible interest for
| parking their cash in the bank - has a reasonable expectation
| that their deposit is safe in a regulated bank. And the
| government has an interest in assuring bank customers across
| the country that ordinary deposits are safe in regulated
| banks that are adequately capitalized.
| 300bps wrote:
| The "capitalists" invested in this business will get $0.
|
| Look at their stock chart. Heck, look at what their bonds are
| paying.
|
| There will very likely be nothing left for the "capitalists"
| after depositors are paid.
| jmull wrote:
| If you're volunteering to give or invest a few billion into the
| SVB receivership deal, then go right ahead.
|
| Please leave me and my tax dollars out of it. I'm not just
| hard-hearted, BTW. Unlimited depositor insurance is an awful
| idea.
| a13n wrote:
| You and your tax dollars depend on the USD being strong, and
| global trust in US banks. It's a worthwhile investment for
| taxpayers to make depositors whole to maintain that trust.
|
| Capitalist society runs on free markets and good regulation.
| We let SVB bypass good regulation here, and that's our
| painful learning lesson that needs to be paid for.
| roflyear wrote:
| There's a lot of things I don't like spending my tax money on
| but I am ok with it because largely I have benefited very
| much from living in the US
| jmull wrote:
| I agree that some things are worth spending tax dollars on.
|
| I do not agree that anything is worth spending tax dollars
| on.
|
| IMO, a taxpayer bailout of Silicon Valley startups --
| highly speculative businesses by their nature -- is a
| really poor use of federal funds.
| azinman2 wrote:
| It's literally a significant portion of America's
| economic future you're killing off, plus wineries,
| farmers, and VC's pension fund holdings. It would be
| insane to let that just go boom.
|
| Mass unemployment in tech is not in national interests.
| It will lead many foreigners to head home and start/join
| competitors and strangle future GDP.
| tqi wrote:
| ooc why is unlimited deposit insurance a bad idea? A quick
| Google search didn't have many results, except some brief
| articles about section 343 of Dodd Frank (which itself seemed
| limited in scope).
| corbulo wrote:
| You're in spirit asking for a state bank, not modified
| private banks. Thats the only way you would get the
| 'result' you're looking for.
|
| Many private banks with unlimited deposit insurance would
| simply play more fast and loose with your money because
| there's basically no risk. Why wouldn't you choose the bank
| that offers more % return on your money? You're totally
| insured.
|
| The state insuring all deposits would effectively make it a
| giant bank (and it would eventually consume them all, on
| top of now having the power incentive to destroy them). If
| you're not aware of the flaws of state banks, look into
| China's banks if you're curious. 'Tofu Dreg' projects would
| be a good place to start. I think its obvious why we
| wouldn't want someone like Pelosi to be in charge of a
| state bank.
| walnutclosefarm wrote:
| > Many private banks with unlimited deposit insurance
| would simply play more fast and loose with your money
| because there's basically no risk. Why wouldn't you
| choose the bank that offers more % return on your money?
| You're totally insured.
|
| You overstate the case for moral hazard here. Most of the
| risk to the bank remains, even if the FDIC covers larger
| deposits than the normal limit of $250,000. 100% of a
| bank's capital remains at risk - that is the bank can
| lose everything it owns and its backers have invested in
| it, even if its depositors are protected.
|
| And, if what I have been able to read about it is
| correct, SVB wasn't really playing fast and loose with
| depositors' money. Any bank can be destroyed by a drastic
| enough bank run, because a banks assets - it's loans to
| customers and investments it makes with deposits, are
| never completely liquid. SVB's situation was worse than
| that, since its non-loan investments (in the form of
| purchased bonds) were under water, but by all account, it
| wasn't by a lot.
| jmull wrote:
| It's called "moral hazard".
|
| Normally, depositors have to have confidence the bank they
| choosewill handle their money competently and responsibly.
|
| With unlimited insurance, depositors will simply choose the
| bank that offers the best terms.
|
| Banks need depositor, so they will respond to what
| depositors want. In the first case there is pressure to
| handle money competently and responsibility. In the second,
| there is pressure to take risks to be able to provide the
| best terms.
|
| https://en.wikipedia.org/wiki/Moral_hazard
| tqi wrote:
| But Moral Hazard seems more like a risk of Deposit
| Insurance overall, rather than just unlimited insurance?
|
| Also it's not like FDIC is granted automatically,
| couldn't there just be much more strict capital
| requirement and risk limits in exchange for a higher
| protection?
| jmull wrote:
| There is a hazard, but it's low:
|
| (1) small depositors, in general, aren't in a very good
| position to evaluate the risk of a bank very well. So
| they won't be exerting much positive force on banks
| anyway.
|
| (2) even if they could evaluate risk well they still
| wouldn't exert much pressure because that requires an
| organizing force (even if the aggregate amount of
| deposits is high)
|
| (3) Understand that the FDIC is a nation-wide program and
| that the funds the FDIC pays out do not come from tax
| payers. They come from premiums paid by member banks.
| Banks get the money for the premiums by reducing the
| terms they offer depositors. That is, the banks directly,
| and depositors indirectly pay for the risk taken on by
| the banks directly and the depositors indirectly. This
| breaks down at higher dollar amounts though because banks
| and depositors aren't really uniform, but at lower levels
| of money it's a good approximation. At higher levels of
| money, depositors and banks will apply increasingly
| sophisiticated measures to shift reward toward themselves
| and risk away. That is, they will find ways to work the
| system. At some level the insurance program becomes a way
| for more sophisticated players to profit less
| sophisticated players. A cap of $250K puts everyone at
| approximately the same level of sophistication and makes
| it harder to run some con at scale.
|
| BTW, insurance for amounts higher than $250K is
| available. It's not that popular, though, because it's
| expensive. It's expensive, of course, because of the
| risk.
| tqi wrote:
| That all makes sense, though I would argue that many
| companies with an order of magnitude more than the FDIC
| limit aren't really that much more sophisticated, and
| certainly not enough to evaluate risk of catastrophic
| failure (as we have seen with SVB).
|
| It seems then the logical alternative to insurance for
| these companies is to concentrate deposits at large, "too
| big to fail" type institutions. I'm not sure if that is
| something that would be good or bad for the economy as a
| whole, but definitely seems bad for smaller banks?
| jmclnx wrote:
| Says nothing real. For instance, will the rule for uninsured
| deposits be followed ? Or will there be a _bailout_ for people
| with over $250,000 in deposits ?
|
| Seems all it says is "there will be no bailout but there will be
| a bailout".
|
| If people with over 250,000 in deposits are covered, the once
| again the the rich is allowed to avoid all risks for bad
| decisions.
| marckhoury wrote:
| > If people with over 250,000 in deposits are covered, the once
| again the the rich is allowed to avoid all risks for bad
| decisions.
|
| I feel like putting your money in a bank should not be
| considered an obviously bad decision. The risk profile your
| bank takes on with your deposits is largely opaque to you, and
| it's not feasible to expect every depositor to do due diligence
| on it. Even if you understood their portfolio you might not be
| able to understand the implications as market conditions
| change. It's also not feasible to expect people to split up
| their deposit into multiple 250k accounts.
| UncleEntity wrote:
| If you want the taxpayers to assume the risks maybe don't
| allow the CEO to lobby to be excepted from the regulations
| which prevent this risk?
|
| This whole situation is dodgy and I'm the last person to be
| calling for government intervention.
| jmclnx wrote:
| If you can have more than 250,000 in a bank account, you are
| rich. You should know and accept the risks you are taking. If
| you do not like the FDIC insurance laws, get it changed.
|
| In 2008, people lost their houses and many their savings
| because they were not rich. And these people were not bailed
| out even though it was due to issues they had no control
| over. Most of these losses were a lot less than that 250,000
| you have. But you are saying "because I have 250,000 I
| deserve a bailout, screw the people who are not rich because
| that is their fault."
| nickthegreek wrote:
| It is very feasibly for people to split their deposits into
| multiple accounts. My mother does it and her savings total
| are a fraction of $250k.
| mrcwinn wrote:
| Good. Investors like Ackman and Cuban seem so concerned about
| payroll for tech workers.
|
| The truth is that the vast majority of this cash was dry powder
| for acquisitions, staying liquid for new new investments, fresh
| VC money for advertising.
|
| Isn't it these same folks who remind us all the time that most
| startups fail? Why bail out an entire bank when 99% of its
| startup depositors wouldn't have made it anyway?
|
| If anything, taxpayers should be able to sit at the front of a
| new cap table with preferred position, like any other entity
| providing a bridge. But at that idea, I am sure they'd warn of
| government interference.
| mgfist wrote:
| > Good. Investors like Ackman and Cuban seem so concerned about
| payroll for tech workers.
|
| ? The truth is that the vast majority of this cash was dry
| powder for acquisitions, staying liquid for new new
| investments, fresh VC money for advertising.
|
| You seem confused. The "cash" you're talking about here _is_
| the deposited cash, which Yellen is saying will get funded. I
| think you 're confusing that with bank equity.
| SkyPuncher wrote:
| Cash flow is currently the issue for many businesses.
|
| They literally cannot afford to pay people on Monday if their
| deposits are not returned.
| [deleted]
| chipgap98 wrote:
| > The truth is that the vast majority of this cash was dry
| powder for acquisitions, staying liquid for new new
| investments, fresh VC money for advertising
|
| Any sources for this? This seems like an opinion with nothing
| backing it up.
|
| > Isn't it these same folks who remind us all the time that
| most startups fail?
|
| There is a big difference between a single startup being able
| to fail at any time and many of them failing all at once.
| colinmorelli wrote:
| There's also a big difference between a startup failing
| because it doesn't deliver a product that people want and
| will pay for, and a startup failing because of "random
| chance" (in quotes because I can't prove that bank choice is
| a random distribution among startups, but it's not clear that
| it's a proxy for quality of founder or company)
| skwirl wrote:
| > Investors like Ackman and Cuban seem so concerned about
| payroll for tech workers.
|
| They weren't calling for a bailout of SVB. They were calling
| for protection of depositors, which is what Yellen is trying to
| make happen.
| aodin wrote:
| Both Ackman and Cuban have called for measures beyond
| "protection of depositors".
|
| Ackman: "What should the FDIC do? @FDICgov to guarantee all
| bank deposits by Sunday night before Asia open and call a
| time out. Run a process to recapitalize @SVB_Financial while
| managing liquidation of UST and MBS portfolios ... Equity
| holders pre-recap are wiped out, bond holders are protected."
| [1]
|
| Cuban: "The Fed should IMMEDIATELY buy all the
| securities/debt the bank owns at near par, which should be
| enough to cover most deposits. Any losses paid for in equity
| and new debt from the new bank or whoever buys it. The Fed
| knew this was a risk. They should own it" [2]
|
| In a following tweet, Cuban claimed "this isn't a bailout"
| [3]. Their tweets, like many of the comments here, seem to be
| arguing the semantics of a "bailout". However, both Ackman
| and Cuban are calling for financial assistance from the Fed,
| which is absolutely a bailout, if only "partial".
|
| [1] https://twitter.com/BillAckman/status/1634694924707807236
|
| [2] https://twitter.com/mcuban/status/1634416692301373442
|
| [3] https://twitter.com/mcuban/status/1634418925331968007
| nipponese wrote:
| I guess that's true if you are a Roku or a Roblox, but how can
| you say that about sub-50 person company still trying to find
| its footing?
| lotsofpulp wrote:
| The same thing people tell 22 year olds trying to find their
| footing who invested in the wrong degree.
| nipponese wrote:
| Depositing money in a bank is not supposed to be an
| investment with associated risk.
|
| Yes there may be an interest yield and services rendered,
| but these customers were not greedily looking for a sizable
| return.
| ffggffggj wrote:
| There are literally stickers on the doors of every bank
| explaining that depositing money beyond $250,000 incurs
| risk.
|
| These naive smol bean founders don't struggle to figure
| out the most tax advantageous way to get paid, let's not
| pretend they're too stupid to read a huge sticker.
| nipponese wrote:
| You're not wrong, but the purpose of "moral hazard" is to
| punish risky investments.
|
| What are you trying to punish here? Founders who didn't
| want to waste time messing around with multiple banks?
| ffggffggj wrote:
| The VCs who advised them to behave this way, if you ask
| me. In my ideal resolution, the government does their own
| valuation of the startups, rescues in excess of insurance
| the ones that seem promising, and proportionally takes
| the VC equity in these companies that got special rescue
| consideration. If the investment is getting bailed out,
| the VCs who started this mess shouldn't get their equity
| returns. They can invest again in the next round if they
| really believe their convictions.
|
| Practically, the VCs should have made some bridge loans
| to solve the short term problems while we wait to see
| what comes out of receivership. Some did, and good on
| them for sticking with it in the hard times.
| nipponese wrote:
| Interesting perspective, but the flip side is you're
| rewarding VC who encouraged the run on the bank.
| lotsofpulp wrote:
| > Depositing money in a bank is not supposed to be an
| investment with associated risk.
|
| Says who? Why do all the signs in a bank specify $250k
| then?
|
| What if the 22 year olds also thought that when they
| borrowed money to get their degree?
| berkle4455 wrote:
| Roblox has $150M at SVB out of their $3000M cash position.
| They're completely fine.
| corette wrote:
| I have a really dumb question. If my spouse and I have a checking
| account and a savings account at the same US Bank, does the 250K
| limit apply to the total of both accounts or each account
| separately?
|
| Say we have 200K in checking and 200K in savings. Would we get
| 400K from FIDC or just 250K total?
|
| Thanks
| paxys wrote:
| The limit applies to all your accounts at the bank combined.
|
| However you and your spouse each get $250K worth of insurance,
| so in this case it'll be $500K.
| [deleted]
| api wrote:
| I'm hopeful that a lesson was actually learned in 2008. The
| damage that did to our whole society was really dramatic.
| walthamstow wrote:
| I thought most of the issues in 2008 stemmed from lessons
| learnt in the aftermath of 1929 which were either forgotten or
| were forcibly unlearnt (repealed) after decades of lobbying.
|
| So, even if we do learn lessons, don't expect them to last very
| long.
| patientplatypus wrote:
| Does anyone have any hard numbers on the risk of potential
| contagion in the banking sector? This is a rather large
| institution to go bust, and there is some discussion that a large
| percentage of their portfolio is composed of members that are
| over the FDIC limit. I also don't know how the Treasury mismatch
| can be solved - do you just tell creditors to wait for the
| maturity of the 10 year bonds to withdraw their funds and eat
| inflation when moving the assets to the Santa Clara bank?
| Ideally, if there is no risk of contagion to the larger financial
| system all of these firms can take a hike, but I don't know if
| that's known a priori. Yellen is just saying "we're not going to
| do that," but it would be helpful if there were some hard numbers
| or other reassurance that they know that the larger economy won't
| be affected (outside of these firms going bust for poor asset
| management).
|
| EDIT -
|
| From the WSJ (https://archive.ph/HZ29y)
|
| "
|
| A plan that soothes nerves about access to uninsured deposits--
| most of the bank's deposits are sizable enough that they don't
| carry Federal Deposit Insurance Corp. protection--could tamp down
| the crisis and limit any impact on the economy as the Federal
| Reserve focuses on combating inflation by raising interest rates.
|
| But failing to swiftly clarify how SVB's customers can access
| funds, make payroll and conduct business risks broader economic
| consequences and threatens to complicate the Fed's monetary
| policy decisions.
|
| "We want to make sure that the troubles that exist at one bank
| don't create contagion to others that are sound," Treasury
| Secretary Janet Yellen said in an interview on Face the Nation on
| CBS Sunday. "We are concerned about depositors and are focused on
| trying to meet their needs."
|
| Ms. Yellen declined to provide details on what federal
| policymakers are considering.
|
| "
|
| In other words, it doesn't look like we know anything yet.
|
| This is the statement from the Financial Times article -
|
| "Let me be clear that during the financial crisis, there were
| investors and owners of systemic large banks that were bailed out
| . . . and the reforms that have been put in place means we are
| not going to do that again," Yellen said. "But we are concerned
| about depositors, and we're focused on trying to meet their
| needs."
|
| And from here - https://www.fastcompany.com/90864111/silicon-
| valley-bank-svb...
|
| "
|
| The FDIC ordered the closure of Silicon Valley Bank and
| immediately took position (sic - possession) of all deposits at
| the bank Friday. The bank had $209 billion in assets and $175.4
| billion in deposits at the time of failure, the FDIC said in a
| statement. It was unclear how much of deposits was above the
| $250,000 insurance limit at the moment.
|
| "
|
| Unless SVB had over 700,000 customers, quite clearly there is a
| mismatch between insured and uninsured customers.
|
| So by Yellen saying "But we are concerned about depositors, and
| we're focused on trying to meet their needs." and at the same
| time saying there won't be a bailout she's effectively saying
| nothing. In this case those things are synonymous.
|
| Until there are hard numbers on possible contagion and the steps
| that the Federal government is going to take to prevent that we
| won't know anything for sure.
|
| FYI - Here's the transcript of the interview with Janet Yellen on
| Face the Nation - https://www.cbsnews.com/news/janet-yellen-face-
| the-nation-tr...
| patientplatypus wrote:
| From the Face The Nation transcript -
|
| MARGARET BRENNAN: For those depositors, about 85% of SVBs
| accounts were uninsured. And, as you were saying, a lot of
| different tech firms relied on them. Do you believe that
| depositors should be paid back in full? Will they?
|
| SECRETARY YELLEN: Look, I'm not going to comment on the details
| of the situation at this point. I simply want to say that we're
| very aware of the problems that depositors will have, many of
| them are small businesses that employ people across the
| country. And of course, this is a significant concern, and
| working with regulators to try to address these concerns.
|
| So that means (if the other numbers above are correct) that
| there should be approximately $150 billion in assets that are
| currently uninsured. The risk of contagion may be less than
| during the 2008 financial crisis if there is less counterparty
| risk (banks owing other banks assets and no one understanding
| who owns the underlying). There would be a problem to the
| extent that VC firms may go bust and this trickles up to hedge
| funds and larger institutions. That risk is hard to assess and
| asset holders have every incentive to claim that risk to be
| high.
| nemo44x wrote:
| Good, they need to convince depositors at all the small and
| medium banks to not drain their account Monday morning. Many
| banks have mud and longer term treasuries in their book and
| they'd be well under water if they had to mark to market which
| they would if forced to sell. The Fed has had erratic policy for
| a few years now and combined with the Gov flooding the market
| with cash and stims, all these safe places to park cash have
| suddenly been made into speculative investments.
|
| We don't need 1000 banks collapsing. Irresponsible fed and
| government need to own this and ensure deposits are safe. Selling
| everyone nearly 0 interest bonds and then jacking interest rates
| to the highest rates in 20 years over the course of 12 months is
| a scumbag move.
| skee8383 wrote:
| sounds like the same thing to me.
| pr337h4m wrote:
| They should just get out of the way:
|
| >The FDIC, which took over SVB on Friday, has sought bids from
| interested parties during the weekend. The regulator is looking
| for a bank that has the financial wherewithal and management
| expertise to handle Silicon Valley Bank's assets and customers,
| but not one that is so large as to be considered "too big to
| fail," these people said.
|
| >That means large lenders like JPMorgan Chase or Bank of America
| likely aren't in the running, the people said. Even some large
| regional banks could find it difficult to absorb Silicon Valley
| Bank, which was the 16th-largest U.S. lender as of the end of
| last year. There are concerns that doing so could intensify
| regulatory scrutiny, even if a lender were to "rescue" SVB in an
| emergency sale, the people said.
|
| https://www.theinformation.com/articles/regional-banks-are-m...
| christkv wrote:
| Bail them out at the value of remaining assets in the bank
| basically buying back the bonds. Any left over losses distribute
| over the depositors .
| 323 wrote:
| In 2008, during the global financial crisis, the German
| government declared that all deposits in all German banks will be
| guaranteed by the state. No limits. The official limit before was
| 100k euros:
|
| > "The state guarantees private deposits in Germany," Finance
| Ministry spokesman Torsten Albig said. A second ministry
| spokesman said the guarantee was unlimited.
|
| https://www.reuters.com/article/financial-germany-deposits-i...
| indymike wrote:
| > "Depositors shouldn't get anything beyond the insured
| $250,000".
|
| This is just uneducated people sharing a knee-jerk reaction.
| greatpostman wrote:
| It's still not clear to me, are they making the depositors whole?
| [deleted]
| ellisv wrote:
| It sounds like they're trying to - and I think probably will -
| but it isn't a sure thing yet.
|
| Resting in my armchair, I think they're trying to make deals
| with several other banks to absorb the SVB clientele. Maybe
| there's one bank that agrees to buy up a large chunk of the
| deposits and a couple smaller ones that participate as well. If
| there are multiple buyers, it spreads out risk and doesn't just
| give assets to a big big, and may help raise the price floor.
| The FDIC might cover the gap.
| gonzo41 wrote:
| Yes, it's share holders who will realize the loss. Anyone owed
| money by the bank, ie depositors is now in a line to be paid as
| the FDIC sells everything and pays out the obligations.
| belter wrote:
| Paid out to the limit set up by FDIC rules you mean?
| remote_phone wrote:
| Depositors will get a "special dividend" next week which is
| about 50% of their deposits. The other 50% will be coming
| as they sort out and sell the assets which would take a
| couple of months.
| TechBro8615 wrote:
| I'm hearing this 50% number everywhere but what is the
| source for it?
| gonzo41 wrote:
| Yes you're correct. Another poster has detailed the
| process, but most of the depositors monies will be paid
| back in due time.
| belter wrote:
| Just to be clear we are on the same page. The FDIC limit
| is 250K and most startups had more than that...
|
| "FDIC - Deposit Insurance FAQs"
| https://www.fdic.gov/resources/deposit-insurance/faq/
| macintux wrote:
| Right, but the bank still has substantial assets. The
| government is making sure the depositors get the bank's
| remaining money, not the shareholders.
| grey-area wrote:
| The 250k will happen Monday and is not in question, the
| rest will come in bits via special dividends as they sell
| assets, it may or may not reach 100% of deposits over
| time.
|
| If the fdic has any sense they'll announce up front the
| exact figures though and announce it is close to 100% for
| depositors to make sure this is contained, ideally
| through a sale to another bank, if not they'll have to
| run it. Bondholders and shareholders and svb employees
| get wiped out.
| Kephael wrote:
| The bank has long term bonds that they loaded up on
| during the Covid interest rate lows. It's not possible
| for the uninsured depositors to get anything near 100% of
| their deposits since these bonds have lost much of their
| value. Unless there is a bailout, no depositor is getting
| anything near 100%.
| jeffbee wrote:
| 75% of depositors had less than $250k on account and
| every one of these accounts will get all of their money
| tomorrow. The rest of the depositors will get $250k
| tomorrow and most of the rest of their money later.
| [deleted]
| niij wrote:
| The 250k FDIC limit is just what they guarantee. If the
| bank has enough assets left they will pay over the limit to
| make depositors as whole as possible. Plenty of information
| on this topic in threads over the last few days.
| bradleyjg wrote:
| Yellen is suggesting they will, but there's no details yet.
|
| I don't believe the FDIC has the legal authority to do so, but
| it's highly possible that the treasury and/or Federal Reserve
| can cobble together some ad hoc legal justification.
| CPLX wrote:
| There's a lot of ways they can just do whatever they want.
|
| It could be as simple as the fed purchasing a large long
| dated convertible note with very favorable terms from the new
| entity created for receivership and then turning around and
| selling that entity to another bank, now that the balance
| sheet is fine. Or the conceptual equivalent.
| [deleted]
| Eumenes wrote:
| Bad business decisions have consequences I guess
| xoogler2004 wrote:
| The amount of speaking out of one's own arse that's happening in
| this thread is absolutely amazing.
| softwaredoug wrote:
| A lot of people (including me) talk past each other in SVB
| threads. I think it's important to differentiate:
|
| - helping FDIC insured, helping businesses with a few million in
| deposits that want to hit payroll, VCs, and "billionaires" - rich
| people's funds
|
| - a bailout (using taxpayer funds) vs receivership to make
| depositors whole as possible
|
| - a bailout of the bank itself (aka 2008). Bailout of the
| depositors. Just trying to prioritize business deposits over
| other depositors, etc
|
| I suspect a lot of emotional disagreement is really more about
| not understanding what each other is really saying than anything
| else.
| di456 wrote:
| This is the only way.
|
| The moment that the government guarantees or bails out deposits
| above the FDIC limit, taxpayers assume all risk over the entire
| banking sector and losses are socialized. That would be the
| official start of the end of free market economy.
|
| There's a well traveled process to winding down a bank and
| recovering what is left for depositors. Let's not try to fix what
| isn't broken.
| marcopicentini wrote:
| If a company would have bought short term bond (6 months) does it
| would be safe, right?
|
| Even if these bonds are purchased using SVB brokerage account.
| cheeseblubber wrote:
| First of all SVB should be left to fail. We should not privatize
| profits and socialize losses. We should have much more stringent
| regulation to prevent this from happening again.
|
| Secondly people are conflating bailing out depositors with
| bailing out SVB. The bank took all the risk and had all the
| gains. The depositors did not have anything to gain here besides
| keeping their money safe. The depositors picked a reputable bank
| that has been around for 40 years. Their business should not fail
| because the failure in the bank and the government regulation.
|
| Edit: The ones who are hurting the most are not the VC's startup
| who told their startups to take their money out. It is those who
| didn't contribute to this problem. The depositors that didn't
| want to cause a bank run is the ones that will be hurt most.
| londons_explore wrote:
| I think the 'help' isn't financial help...
|
| It's technical help and the ability to temporarily ignore certain
| laws to expedite the process of migrating customers to a new
| banking platform.
|
| For example, KYC laws might require a signature from every
| director of a company to open a bank account... But when
| migrating an account from SVB to another bank, the government
| might allow that requirement be ignored for 30 days.
|
| Or the government might allow existing SVB computer software and
| technical systems to continue to operate in certain cases where
| migration to a new bank is technically a long process.
| guiambros wrote:
| https://archive.is/Yyu4S
| JumpinJack_Cash wrote:
| In the aftermath of SilverGate and SVB demise people are
| rightfully (from their perspective) rooting for a shake-up at the
| top of the social pyramid.
|
| I don't know if people realize but living in San Francisco and
| being at the helm of your own company with millions in equity
| funding is an extreme privilege.
|
| Millions of things have to go right in order for that person to
| be in such position. That is the dream of many individuals who
| were not so lucky.
|
| Now one thing goes wrong for them and there could be a turnover
| at the top, at least a shake-up, meaning other people will get to
| be in such extreme privileged position and the formerly
| privileged have to back down and go do something else instead.
| Something a bit less privileged.
|
| Instead here comes daddy-government to ensure that everything is
| freezed in place with no shake up whatsoever.
| TechBro8615 wrote:
| For every one privileged founder there are dozens of employees
| who won't get paid.
| JumpinJack_Cash wrote:
| And each and everyone of them has a slam-dunk case in a class
| action lawsuit against the board of the company they were
| employed.
|
| Not to mention employees didn't have their savings in SVB so
| their net worth is not at risk, whereas it's the 'net worth'
| of the company which is at risk because it was all stored in
| SVB accounts.
| sbaiddn wrote:
| The irony as a fly-over-American is great. We are constantly and
| sanctimoniously told we have to move from our cities and towns to
| the Coastal regions. When toxic chemicals are spilled we're
| ignored, or worse - mocked. We're told we're financial burdens on
| the country.
|
| But what we see is both coasts gambling with low interest rate
| money, getting rich off of fee leaching, and, when the gravy
| train slows down, causing a financial meltdown within 15 years of
| each other.
|
| Don't kid yourselves. The tech boom was largely low interest rate
| fueled and, for many of your companies, a mirage.
| pfannkuchen wrote:
| I'm sympathetic to the tech mirage view generally. One piece I
| don't quite understand though, is why did tech so
| disproportionately gain from low interest rates when compared
| to other industries?
|
| Is it just because the friction of starting a non-physical
| business is so much lower? I'm not quite satisfied with that as
| an explanation, because that provides a competitive advantage
| to tech vs other industries regardless of interest rate levels.
| sbaiddn wrote:
| Tech is a very high risk-high reward; its not so much that
| low interest rates favor high tech, but rather that high
| interest rates decimate high tech.
| texafornia wrote:
| If the Feds make the depositors whole - it's a bailout.
| goldforever wrote:
| [dead]
| tomp wrote:
| [flagged]
| [deleted]
| [deleted]
| gigatexal wrote:
| " Janet Yellen said on Sunday that the US government was working
| closely with banking regulators to help depositors at Silicon
| Valley Bank but dismissed the idea of a bailout. Speaking with
| CBS on Sunday, the treasury secretary sought to assure US
| customers of the failed tech lender that policies were being
| discussed to stem the fallout from the sudden collapse this week.
| The Federal Deposit Insurance Corporate (FDIC) took control of
| the bank on Friday morning. "Let me be clear that during the
| financial crisis, there were investors and owners of systemic
| large banks that were bailed out . . . and the reforms that have
| been put in place means we are not going to do that again,"
| Yellen said. "But we are concerned about depositors, and we're
| focused on trying to meet their needs."
| [deleted]
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